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In fairness, it was Gene who said, on October 17th, "we are about to make a statement" ( http://thehackensack.blogspot.com/2008/10/e-mail-from-ceo-of-alloy-steel.html ).
I agree that it looks like we won't get a pre-announcement. We may get a 'post-announcement' like we did last quarter.
It's too bad the company doesn't have conference calls, because I'd love to hear them answer some questions about their sales strategy. Remember, these wear plates have applications in infrastructure as well as mining, and President-elect Obama has promised massive infrastructure spending as part of his fiscal stimulus package next year. That means lots of bulldozers and trucks excavating dirt, and there ought to be a huge market for Arcoplate to reduce the costs related to the wear & tear and downtime on this equipment.
Recent news out of China relating to steel production and industrial production generally has been pretty grim though.
Worth noting, too, that if the exchange rates stay in this range, and AYSI starts selling product in the U.S., then the exchange rate could work to its advantage: it would be getting paid in U.S. dollars and paying manufacturing expenses in Australian dollars.
You may be right.
It's always better though to under promise and over deliver. It would have been better to say we expect to make an announcement by the end of the month, for example, and then let us be pleasantly surprised if we hear something sooner.
Still, the more important thing is what they announce, not when.
It's after 3pm Friday in Perth. I just sent Alloy Steel a note asking if they are still planning to issue a shareholder communication this week, because I realize their business week is going to end in a couple of hours.
Looks like I held up the price a little with my buy at .451. Let's see if some desperate seller will now sell out to LF for ten cents less.
Picked up some more at .451.
I haven't sold any AYSI. And I'm still holding my other commodity plays.
"He still thinks it is a cyclical bull market just going thru a steep correction and hasn't moved out of commodities so he's been hit hard."
Great posts. Just a quick clarification: Rogers believes we are in a secular bull market in commodities, and this is a cyclical correction. Secular generally refers to trends longer than five years, and cyclical refers to the shorter trends. According to Rogers, the current secular bull market in commodities started in 1999, and the shortest such secular bull market on record lasted 15 years; the longest 23 years.
You're right though, Rogers is still bullish on commodities. See his interview with the Financial Times yesterday: http://www.ft.com/cms/s/0/fb9a69aa-b511-11dd-b780-0000779fd18c.html?nclick_check=1
I don't know what the deal with Scottrade is, but on Monday I placed limit buy orders for AYSI in a Fidelity account and a Scottrade account before the market opened. Fidelity filled my trade at 9:35am and Scottrade didn't fill it until about 1:30pm -- and I set the limit price a tenth of a cent higher on the Scottrade order.
I'll take a few AYSI shares off your hands for .45 per share.
USEG is under net cash. Not profitable yet, but could be sometime next year. Check my site for the investment thesis, but also listen to last week's conference call for some bearish angles before you consider investing.
I agree. There are also solidly profitable companies with strong balance sheets trading at 5-7x ttm earnings. Which is why I wouldn't expect AYSI to trade higher than that sort of multiple in the near future. If it makes it through the economic rough patch, then its multiple might expand a little.
Put in a bid for some more at .45.
In this market, half book for an unprofitable company isn't unheard of. I own one (USEG) that's trading at .4x book and for less than its net cash.
Maybe, but I can think of two other reasons why the stock would be selling off now, even if investors think the numbers for the last quarter will look good:
1) Deleveraging. Margin calls forcing investors to dump everything.
2) Fears that the company's sales will dry up due to the global recession over the next few quarters.
What's your thought process behind that?
If the news on the quarter is bad enough to knock the stock down more than 60% from here, why would it be worth buying at all? Or are you thinking the stock could drop that low even on good news?
I'd like to see them first have enough cash to cover their SG&A for a few quarters if sales drop off temporarily, but if they do start paying a dividend, I'd rather see them pay a discretionary annual dividend, rather than trying to lock in a regular quarterly dividend. That's what another micro cap I own (KSW) does. I think that makes more sense for a small company with potentially lumpy earnings.
Concern about the near term economic environment may be a headwind on the stock price even if the results are good. If earnings come in in the range we are estimating though, it will increase the company's working capital and improve the perceptions of its longer term survivability.
So that's about $1.36 million in earnings. And my estimate of $1.3 million in earnings comes out to about 7.7 cents per share. Let's see if the wisdom of crowds works here. If more board members offer estimates, it will be interesting to see how our average estimate compares with the actual result.
Let's open it up to estimates/guesses from the board. You've got mine: $1.3 million in earnings on $3 million in sales. Let's see what everyone else thinks.
A concern I have going forward is about liquidity though. It would be nice to see the company build up a little bit of a cash cushion -- enough to keep it going if the next year or so is lean.
GWMAN,
My guess is that it will be something good -- maybe ~$1.3 million in earnings for the quarter on ~$3 million in sales? But who knows.
Gilead,
I'm not a paying member of this site, so I can't respond to you privately here. You're welcome to e-mail me if you like. My e-mail address is listed on my blog.
I asked the company last week if they were planning to issue a press release or 8-k before they filed their 10-k at the end of the year. The CFO, Alan Windus, wrote me back last Friday morning and said this:
"The auditors are currently reviewing end of year figures; we should be in a position to lodge a preliminary profit advice late next week."
I posted this on my site last Friday ( http://thehackensack.blogspot.com/2008/11/alloy-steel-update.html )
Incidentally, I picked up more shares at .652 and .653 Friday and today.
Just put in another small limit buy order. It would be nice if the company put out a short 8-k or press release before the 10-k, but we'll see.
Something to bear in mind: at the end of the secular bear market that followed the Great Depression, stocks were trading at 7x their trailing earnings, on average. AYSI is now trading at less than 5x its trailing earnings.
No problem. You may also be interested in this post I wrote about small stocks a few months ago, which drew on some recent academic research that found that stocks that have days when the market is open but no shares are traded outperform other stocks: http://thehackensack.blogspot.com/2008/07/why-worry-about-small-thinly-traded.html
Last night in Barnes & Noble, I was leafing through O'Shaughnessy's book "What Works on Wall Street" and came across something you guys might find interesting. Everyone knows about the studies that show that small cap stocks outperform large ones, right? O'Shaughnessy said that further research shows that almost all of that outperformance came from stocks with market caps of $25 million or less, but that these were "impossible to buy".
Clearly, any of us who have bought shares in Alloy Steel recently know that it's not impossible to buy stocks this small if you are patient and use limit orders. I think what O'Shaughnessy meant was that these stocks were impossible for institutional funds or large investors to buy, because their large orders would necessarily move the market.
Welcome aboard.
And yes, I am "impossibledistances" on Yahoo.
Just put in another limit buy order for a few more shares.
Filled my most recent GTC limit buy order at .772.
Time will tell, but the Chinese government will be in a bigger world of shit if it doesn't keep its economy growing (its GDP still grew at a 9% annual rate in Q3, but that was the slowest rate in a few years). If China can't rely as much on exporting to us during a recession, that means it has to make up for that with domestic infrastructure investment.
Put in a limit order at a little over 77 cents per share today. Only got a partial fill. At today's closing price of 91 cents, AYSI is trading at 6.03x its ttm sales.
This is obviously getting crushed in sympathy with the miners, but Alloy Steel's business shouldn't be as sensitive to the price of ore as the miners are. I would think that if ore prices go down some (as long as they don't go below the cost of production, as happened with zinc this year), it would make even more sense for a miner to make its operations more efficient and reduce its equipment replacement costs. If Alloy Steel's wear plates can help miners do that, that ought to result in more business for Alloy Steel.
I upped my limit buy order by about 10 cents... I'll see if it gets filled.
Update from Alloy Steel's CEO Gene Kostecki:
I e-mailed the company early this morning and asked the following question:
Can you provide an update on the construction of your second mill? If memory serves, you expected to have it in operation by September.
Also, have you succeeded in hiring the sales persons you were recruiting over the summer?
Is your planned joint venture in Mongolia still on track?
Here is the response I got from the CEO:
Thank you for your continuing Interest in AYSI. We are about to make a press statement on the company, we were just waiting to get the accounts finished for the 3rd Quarter. I think that every one will be in for a pleasant surprise. We have shelved Mongolia for at least 6 Months till this madness subsides. The 2nd mill is a few weeks behind schedule before we start calibrating and software checking. We are continuing to steer a steady course for the company.
I've got a limit order in for .76 cents through Scottrade. I'll let you guys know if it gets filled.
Bearish article on metals in today's FT: "Mining and metals prepare for lean times" ( http://www.ft.com/cms/s/0/890e4f94-9a51-11dd-bfe2-000077b07658.html ). Excerpt:
"The mining and metal industry is bracing for months of price weakness as slowing demand in the US, Europe, Japan and some emerging markets, including China, is likely to push commodities such as copper into surplus.
At the London Metal Exchange annual dinner last night, the premier gathering of the industry in London, the mood among traders, bankers and mining executives was gloomy, particularly with regard to the short term.
"With the likelihood of a global recession rising, industrial metals prices will face further downward pressure," said a report by Francisco Blanch of Merrill Lynch.
Tight credit is further dampening demand for raw materials, as traders are unable to secure credit lines to move their commodities."
Usually, markets are forward indicators of economies, but Mr. Market has gone off the deep end recently. The problems in the financial sector are severe, but the real economy is in nowhere near as bad shape. And, as you note, China -- and also Brazil and Australia, for that matter -- have plenty of dry powder to stimulate their respective economies, fiscally and monetarily. I don't think the financial crisis in the first world will stop the Chinese from building out the suburbs around Shanghai, for example.
Perhaps he would have preferred if Alloy Steel management put out the sort of press release that Potash Corp put out on October 2nd, Reuters: Potash Corp says stock plunge 'an overreaction' ( http://www.reuters.com/article/marketsNews/idCAN0227127120081002?rpc=44 ). That sort of press release would be pointless, IMO. If Alloy Steel has something substantive to announce, they should, but issuing press releases for the sake of maintaining shareholder communication would be pointless. It did nothing for POT and it wouldn't do anything for AYSI.
How would the performance of the Chinese and Russian stock markets affect the implementation of the JV in Mongolia? The real economy and the stock market are two different things; China's stock market has getting crushed all year and its economy (up until now at least) has still been growing at a fast clip.
Just put in a limit order at 91 cents per share.
I haven't tried to contact them since the last quarterly release, but I suppose I can try to ask them about the mill. I'll let you know if I hear back.
I just put in a limit for a few more shares at 1.51. Doubt I'll get them, but we'll see.