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SHAK - Tried to do the same this morning at $96... Unfortunately there are no options trading on SHAK yet either, so no way to bet on a decline at the moment.
Q2 wasn't just a great quarter, it was a phenomenal quarter. Keep in mind that the company earns the majority of its revenue in AUD dollars (AUD). During the quarter, the AUD was at its weakest levels in over the past 5 years and averaged $0.78. When AYSI reports its financial, the revenue is shown in US dollars (USD). One could convert the revenue to AUD ($8.974 million USD / 0.78) to see that Q2 was a record quarter in AUD ($11.41 million AUD).
More importantly, EBITDA was a record $3.8 million USD for the quarter, a record quarter in USD or AUD.
In the past year, AYSI has also released a new ceramic product. It would be interesting to know how that product has been accepted by the market and if its been contributing to these record results.
I think the "weakness" in mining is actually a huge benefit to AYSI. AYSI's product are designed to minimize disruptions due to maintenance and allow mines to run more efficiently and profitably. AYSI's key selling points are exactly geared toward these benefits. So long as volumes continue to grow, miners will be extremely focused on driving productivity and profitability gains from their existing operations, especially in this low-cost environment. I expect to continue to see strong performance, especially as prospects in China are starting to improve.
The valuation of the company is absurdly low. They have consistently shown that they can perform in any market. They have been profitable every year except in 2009, when they lost $72,000 (only $72,000!!! in one of the worst recessions and mining environments). It baffles me how this company with its consistent performance can be valued at just 1.8x EBITDA, when its weaker competitors trade at over 5x - 8x EBITDA.
BQSR - I bought a starter position today after doing some diligence over the weekend. I agree that this is undervalued and I'd love to see them do something productive with all their cash on the balance sheet. I wish I would have looked into this one before their blowout report...
Well, I'm not so sure we'll see much of a pullback. The valuation is very depressed already and this blow-out quarter may draw some attention from new shareholders.
Intro is updated with the latest financial results. Below is a table that I like to put together and update that looks at the implied multiples of EBITDA and EPS based on various share prices. As you can see, based on the current trading price, AYSI's multiples are significantly lower than similar public companies in the industry. I personally feel that the stock should be valued at least $2.50 - $3.00, with plenty of reasons for being above $3.00.
I'd love to hear your thoughts on the latest quarter and any views you have on the current valuation. Thanks.
I have updated the iBox with the latest financial information which includes a summary of the recent quarterly results as well as annual results over the past several years. As you can see, they have consistently performed well, with EPS above $0.20 in 4 of the past 5 fiscal years.
Their quarterly results are somewhat lumpy and have always been so, but looking at the annual results, you'll see the consistency in their performance. This is the 2nd highest quarterly revenue in their history, though with the low Australian dollar vs US dollar, sales in Australian dollars were probably higher this quarter. It's hard to say if this quarter can be repeated, but given the valuation and large amount of cash on the balance sheet, I don't think it needs to be repeated to see this move higher.
They have $0.68 per share in cash on the balance sheet. Earnings have consistently come in around $0.25 per share. Ex-cash, it's a currently trading at 2.3x trailing earnings (TTM EPS of $0.347). I personally think fair value is closer to the $2.50 - $3.00 range, but given the consistent performance and growth opportunities, prices above $3.00 are reasonable.
I'll be updating the iBox later this evening with the latest financial results. I'll also update the value sensitivity tables that I've provided in the past that show the implied multiples based on the current price and other share prices.
I picked up 10,000 more shares here under $1.50. I'm surprised there hasn't been a bigger move. Cash is up over $0.67 per share. Trailing EPS is now at $0.35 per share, so a trailing P/E excluding cash of 2.4x at $1.50... So cheap its scary.
They now essentially have enough cash to buyout non-family shareholders for $1.70. They could probably take on $5 million of debt and use cash on the balance sheet and pay up to $2.40 to buyout non-family shareholders. It wouldn't surprise me if this eventually happens...
I picked up 10,000 more shares here under $1.50. I'm surprised there hasn't been a bigger move. Cash is up over $0.67 per share. Trailing EPS is now at $0.35 per share, so a trailing P/E excluding cash of 2.4x at $1.50... So cheap its scary. They now essentially have enough cash to buyout non-family shareholders for $1.75. They could probably take on $5 million of debt and use cash on the balance sheet and pay up to $2.40 to buyout non-family shareholders. It wouldn't surprise me if this eventually happens...
AYSI hits it out of the stadium with its Q2 report! EPS of $0.16 on the quarter and cash up over $11.7 million!!!!!! Wow what a quarter...
AYSI hits it out of the stadium with its Q2 report! EPS of $0.16 on the quarter and cash up over $11.7 million!!!!!! Wow what a quarter...
KINS - I added 40% more to my position at chunks at $7.17 in the past two days and at $7.24 and $7.40 today after earnings. Glad to see this has held up and there should be no surprise. I'm confident this will be trading at or north of $10 by the end of the year.
HRTG - Wade, please explain what you mean by "junky" policies and what characterizes them as "junky". Thanks.
KINS - I put in a GTC order around $6.70 in case that ever happens again. Congrats to those that snagged some shares on the drop yesterday. Stock is definitely weak in advance of what everyone know will be a challenging quarter. My guess is that buyers are holding off until the report comes out next Wednesday on the hopes of buying in cheaper (I know I am). I'm expecting a drop on Thursday with support coming from buyers like me and probably others here with the expectation of $0.30+ quarters in Q3 and Q4 that should drive the share price higher after the initial dip.
This same type of pattern played out after last year's weak Q1 (stock dropped to under $6 initially, with a strong rally commencing soon after to over $8) I'm looking to add 50% to my position on a drop under $7, with expectations of seeing KINS closer to $9-$10 by end of year, though I'll continue to hold long-term as I feel management will continue to improve results and generate value for shareholders and collect the dividend in the meantime.
Is everyone else holding off on buying KINS here until earnings are out and behind us?
HRTG - on the earnings call, they mentioned that the gain was in the $4 million range and due to their conservative assumptions on reserving Citizens takeout policies (roughly $0.10 per share after-tax). It's difficult to say that it's one-time in nature as it results from their conservative nature and will likely keep occuring if the keep the same policy.
Overall, I thought the call went well. They're still focused on growth and are doing an excellent job with keeping their reinsurance costs down. G&A was high this quarter by $1.5 million due to stock-based comp adjustments which won't be as pronounced in Q2. They're looking at M&A opportunities and potentially returning cash to shareholders as they feel their stock is ~50% undervalued versus their peers (I agree).
Market reaction has been very muted unfortunately. They should have another quarter of really solid results with the ceding % in the mid 20's, I'm expecting EPS in the $0.80 range for Q2. They did note on the call that they think analyst estimates for the year are light.
AMOT posts EPS of $0.32 on a decline in sales which were hurt by foreign currency declines (big surprise...). Orders down y/y and backlog down to $71 million.
I would expect the stock to drop tomorrow on the results. Fair value is closer to $20-$25 on this one. Looks like we should have held the short through earnings, but the risk/reward profile certainly changed with the steep drop last week.
HRTG knocks it out of the park with Revenue of $105.1 million and EPS of $1.00!!! I don't know why this isn't trading at $30...
Looking forward to tomorrow!
KIK - Thanks... As always, holding into earnings is very risky, but given HRTG's track record with beating results and the fact that it's so undervalued relative to its peers makes me more comfortable.
HRTG - Here are a few reasons why I think a $0.75 quarter would still provide a positive reaction to the stock (its actually a $0.75 analyst estimate for Q1 and $0.77 estimate for Q2, apologies for the mistake in the last post):
-$0.75 would be a significant increase over the $0.42 reported in the prior year, so they would showing huge growth year/year.
-It would also represent a pretty big jump sequentially from $0.66 in Q4.
-When comparing to other pure play FL insurers who are posting lower EPS figures in Q1, HRTG is trading much lower (Given its recent IPO I think investors are still getting to know the company and this discount will diminish).
I am obviously expecting more than $0.75, as they have beat analyst estimates by 20%+ the last 3 quarters (22% beat in Q2 14, 27% beat in Q3 14 and 43% beat in Q4 14).
HRTG - Earnings after the close. Analysts are estimating EPS of $0.77 on revenue of $93.2 million. They earned $0.66 in q4 and have picked up a good number of policies since then. UVE posted Q1 EPS of $0.62 and has rallied up to $27. If HRTG comes in above $0.75 its hard to see them stay trading below $25. The stock spiked to $22.80 after the Q4 report of $0.66. I'm holding a decent sized position into the earnings this afternoon. Good luck to you on this one.
I agree completely. Stunning how quickly it turned. It's nice to have a short workout and turn a brutal day in the market into a green day overall for the portfolio. Now that I've covered, it's time to start looking for some new bargains or short opportunities...
AMOT - Closed the remaining 50% of my short position here under $30. Wow, that was a profitable trade! By far the best short trade I ever had. Thank you hweb for bringing it to the board, I didn't even have to risk holding through earnings...
UIHC - Great work on the short! I did notice some weakness in HRTG this morning which caused me to notice the drop in UIHC. Picked up a few shares of UIHC at $16.67.
UIHC down 15% after posting their Q1 results. I'm a bit surprised that it's dropped so much, especially considering they told everyone this was going to be happening a few weeks back. In hindsight, this would have been a pretty good short. Anyone looking at potentially taking the long side here at $16.80ish? I'm tempted to add a few and holding until Q2 earnings, which should show a rebound in EPS to the +$0.50 range. I would expect a positive reaction once that happens and the stock to trade back above $20...
AMOT - In the green now on the short position as I added more this morning at $42.23. I covered a portion on the way down at $38.87 and $36.50, but I'm still holding a rather large position in anticipation of continued pain with Q1 earnings.
AYSI has a new redesigned content rich website:
http://alloysteel.net/
I will admit, the company has done an amazing job over the last 2 years improving the amount of information available to the public with regards to their product. There are almost daily updates now on their facebook page. The website is slick and has lots of content for different applications for arcoplate and new content for applications and brochures on arcoceramics. I like what they're doing and hopefully it will start to translate into increased sales and growth.
This is one of the cheapest companies out there and it looks like they're working each day to make it better.
Good luck to all...
PR from Martin Engineering regarding Arcoplate and the benefits they've shown in a Vale mine.
https://www.martin-eng.com/press-release/arcoplate-helps-vale
AMOT - How high will she go??? The numbers certaintly work in our favor, the problem is how long does momentum drag this higher until earnings...
The market sure amazes me sometimes. How you could have two industrial manufacturing companies be valued at such significantly different multiples. AMOT is growing marginally and valued at 14.5x EBITDA, AYSI is essentially flat in terms of growth and struggles to trade above 1x EBITDA! AYSI has $8 million of EBITDA, a quarter of the $30.5 million for AMOT.
AMOT is worth $440 million, AYSI is worth $10 million...
AMOT has $75 million of debt, AYSI has ~$9 million of cash, no debt...
How does any of this make sense...
AMOT - The reason that there are no analysts estimates is because there are no analysts covering this stock. This is a small $30 million EBITDA business that deals with basic motors for industrial purposes. They are not producing a sophisticated product at all, or a product that has proprietary technology. They are a small player in a large industry with much more capable and strong competitors.
That's why you see the margins being so low, they don't have any power to command higher margins/prices, its more of a commodity product.
The company is definitely not in the technology sector, which I agree has been performing well this year. Below is a link to their website that shows their products:
http://www.alliedmotion.com/Products/
Nothing high-tech about this company. And with growth slowing to flattish this year, there is no reason for this to trade at +14x EV / EBITDA.
hweb - AMOT - So when it comes to bookings and revenue, the currency impact comes from having to report revenues that were collected in Euros in USD Dollars. So 1 Euro of revenue in Q1 of last year was reported as $1.37 dollars of revenue. Given the decline in exchange rates, 1 Euro of revenue in Q1 2015 is going to reported as $1.125. So there is a 18% decline in US dollar revenue even if they collect the same amount of revenue in Euros.
The same concept goes with bookings. 1 Euro of orders (bookings) in Q1 of last year was reported as $1.37 USD of order (bookings). Now 1 Euro of orders (bookings) will be reported as $1.125 of orders (bookings). The same 18% decline if they have the same amount of orders in Euros.
When it comes to profitability, they are fortunate to have their costs also in Euros as they have operations there in Europe. So on the same amount of revenue in Euros, I'd assume they have the same amount of costs in Euros and thus the same amount of profit in Euros. The decline in earnings again comes from translating that profit in Euro to USD. So there would be a similar 18% decline in profit from Europe even if they have the same profit in Euros as last year.
AMOT - This stock continues to hold up well, even in the face of a steep drop in the overall markets. Only down 2% when the R2k is down roughly the same...
Growth worries are driving the declines in the overall markets and it will eventually catch up with AMOT. GE's industrial segment revenue fell 1% in Q1, partly due to the strengthening dollar. I would expect similar results for AMOT with flat to lower sales in Q1. That should help highlight AMOT's organic growth rate and its high valuation relative to that growth...
Still underwater overall on my short, but feeling confident that it'll work out.
Good luck to you.
PFIE - Sold my PFIE here as the stock has run much quicker than I expected... Might look at it again if it falls back with Q4 earnings.
AMOT - I checked those figures and its only 51,000 shares that are short AMOT, and that is up from 34,000. So there has been very little interest here from shorts, which I believe will change as we move closer to earnings. I think its a good sign for existing shorts and new shorts could provide additional selling pressure to the exiting momentum players and longs.
AMOT - R59, that's a great plan, you're almost guaranteed not to lose... I've pretty much hit the max of my short position already. Averaged in around $36... I need to find the next AMOT and stay in for the triple in 6 months! I struggle to understand the market in situations like this
PFIE - Bought a starter position in PFIE this morning with the dip to $1.15. This company supplies into the Oil & Gas industry and is feeling the pain from the drop in oil prices from +$100 to $50. The share price is down from over $5.00 in September last year to ~$1.20 currently. The share price has continued to slide even as oil prices have firmed.
The company is projecting sales of roughly $50 million for their FY 2015, which ends in March and EPS in the range of $0.10 - $0.12. The company also has over $15 million, or ~$0.30 per share in cash on the balance sheet and no debt. They announced in their prior conference call that they've been working on trimming costs. I don't expect results to improve significantly in the near term as the industry is still facing difficulties. They do however have a few regulatory issues working in their direction in key US shale states. I think long-term, this should end up being an attractive entry point, so long as oil prices rebound, which I think they will in the 2nd half of 2015. I'll be looking to potentially add more if the share price continues to decline and the company updates us on the outlook during their Q4 results announcement.
There is a nice investor presentation on their investor site:
http://www.profireenergy.com/downloads/Profire%20Investor%20Presentation.pdf
AMOT - I tend to look at EBITDA, as it represents the earnings that are generated by the company that are available to all stakeholders (debt and equity). I also only look at the last 4 quarters as the Globe acquisition was fully accounted for in those periods. The trend is as follows:
Q1 2014 - $6.3 million
Q2 2014 - $7.3 million
Q3 2014 - $9.2 million
Q4 2014 - $8.0 million (excluding one-time benefit in SG&A)
Given the weak Q4, both in terms of revenue and EBTIDA, I'm surprised by the 40% increase since the earnings announcement. My short thesis has 3 factors:
1. The company's orders in Q4 were weak, with backlog falling below 2013 year end levels and showing a negative trend over the year.
2. The company is trading at approximately 12.5x EV / EBITDA. The company operates in an industry that typically trades at 8x - 10x EBITDA, depending on growth. Organic growth for this business is not as strong as what's being reported as a result of the acquisition. Revenue growth on an organic basis was 10% last year, and with the decline in orders in Q4 and drop in backlog, I would expect lower organic growth in 2015. The company also only has $250 million of sales, so it is very small. Smaller companies typically trade at much lower EV / EBITDA multiples. Given the slowing growth rate and small size, I would argue that a 8x-9x EBITDA multiple is fair for the business. That puts the share price down in the $20-$25 range. This is my primary reason for shorting!
3. While the insider selling isn't a huge consideration, it's typically a negative, especially since the number of shares and breadth of selling is greater than before.
AMOT - Upped my short position this morning at $35.50. Insiders (CEO, Directors, and a large 8% holder) have dumped over 110,000 in the past month at prices below where its currently trading. I'm going to follow the insiders on this one. I'm not sure what people see in this one at this price...
Wow on the seeking alpha article, hard to believe anyone would trust something written by a college kid who is only starting to study finance, but there are a lot of lemmings and dumb investors out there.
Hopefully it means we're near a top for the stock. I have another order in near $34.50, so I wouldn't mind a slight move higher before a tanking.
hweb,
Thanks for the great short idea! I just followed you in today in the mid $33's as well. I'm amazed by its strength, but expect reality to hit at some point...