Fish,
There were a few key points that were likely lost in my prior long-winded ramblings on this board. Let me take another shot at posting them more succinctly.
1. In my humble opinion, a company that generates a 70% cash return on invested capital deserves a lot of slack. I don't think it is a company in need of "significant strategic and operational changes." To the contrary, I think it's doing just fine.
2. If you go back and review the CEO's public statements since taking over in 2010, he has been remarkably true to his word. After getting burned with product glitches in 2013 and with overly optimistic iBar guidance in 2015, it's understandable that he has become much more cautious.
3. It does appear that iBar is not going to ramp as fast as everyone expected. But, so what? EVSNF is not trading at some ridiculous valuation or burning cash daily. The company can afford the luxury of time, and its core business is stable. Patience here is a virtue.
4. EVSNF is focused on servicing a tough end market. On the positive side, this amplifies their competitive advantage, and helps discourage new entrants. On the negative side, introducing a new product into the mix is not an easy nut to crack. Here's what we can surmise:
A. EVSNF's customers are price sensitive given low margins, and highly sensitive to economic cycles. A large part of the business comes from Europe and Asia, and those economies might be softening.
B. Textile suppliers might be hesitant to pull the trigger on new technology when the benefits of operational improvements have historically accrued to their customers, not them.
C. Machine inspecting a material with such variability as textiles is not an easy technical proposition, and identifying errors in real-time at the loom (as opposed to the finishing line) is a formidable undertaking
D. Even if you were crazy enough to disintermediate the software algorithms from the cameras, it's not clear that EVSNF's customers would want it or know how to apply it to their business processes. Remember that EVSNF's customers are likely compensated on their ability to squeeze pennies out of their cost centers, not on their ability to implement ambitious technology initiatives
5. Before becoming too pessimistic on this name, it's worthwhile to go back and review the economics over the past 9 months. The business has required an additional $400K of invested capital in 2016 thus far (all from receivables and payables and none from inventories or PP&E). The business has parlayed that additional $400K of invested capital into over $1M of cash flow. How many businesses do you know with those kinds of economics? How many of those businesses have no debt on the balance sheet? How many of those businesses trade at low teens enterprise value to free cash flow multiples?
6. In my mind, it bears repeating -- patience is a virtue.
Cheers.
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