Aero Performance Products Inc (fka AERP)

[TallRob0]

RePost:
Hello everybody. I'm a lurker but after reading a few posts I felt compelled to offer some input..

First of all, it is rather fuzzy logic to say that if a business loses money (net income) selling mufflers they will continue to lose more money the more mufflers are sold. That certainly defies not only business 101 teachings but just plain common sense. Making such broad and sweeping generalized projections without examining the underlying fundamentals of the company is negligent, to say the least.

Do you know how many big american companies lost money in the fourth quarter of '07 and even the full year '07? I think you'd get a chuckle from them if you suggested to the CEO's of these companies that because they lost money in '07 they will ALWAYS lose money. LOL.

So let's examine some of the fundamentals here.. and start with the product.. Honestly, i've done some research and I just can't find a bad word to be said about AERO's products. And I've looked. I've scoured the internet, called dealers listed on AERO's website. And I just can't find any bad news there. They're made with quality guage (304 i think) steel, they're sexy looking, and from all accounts they do what they say.. which is increase horsepower, decrease engine temperature, and incrase gas mileage. All of this is the result of a patented jet-engine air foil design. And based on the recent PR's not only is their distribution network expanding geographically to include worldwide outlets.. but they are also expanding their customer base to include fleet applications. All the while they are covering themselves by pursuing patents in these foreign countries.

They also appear to have alot of irons in the fire. They have expanded their product offerings to include kits. Shored up their supply chain by bridging relationships with synergistic partners. And have successfully acquired the human talent to drive their sales and marketing efforts domestically and abroad. Not to mention that the AERO CEO seems very focused on a roll-up strategy that could be VERY lucrative for investors here. For those of you not familiar with what a roll-up strategy is I would suggest you do some research. The space that AERO is competing in right now may be a $60 million industry, but the larger performance parts market is well over $600 million, so there is much room for growth here.

Now let's take a look at the financials. Are they great? No. But the fundamental are there. The gross margins associated with AERO's products are very high. Total company is 55% in fact from their most recent 10Q filing. This bodes very well for AERO. It means that for every incremental dollar sold there will be 55 cents that will be available to cover costs. It is highly doubtful that SG&A will increase at the rate sales will here based on what I've observed. And I was impressed by managements ability last quarter to scale back SG&A costs during their slower time. This points to solid fiscal responsibility. Have they made mistakes in the past? Sure. BUT i belive they've learned from them. Take the Dr. Gas acquisition. A couple years back (assuming they have gone public back then) they may have not thought twice about the dilution that would result from using equity when their stock was undervalued as it is now. But clearly Mr. Hunsaker is being given some solid advice and not acting in haste. I would strongly suggest that all of you should do some research on AERO's 10% holder Mr. David Richards. IMO he is heavily involved with the company and in adivising them on how to proceed here. I expect his advice will weight heavily into Mr. Hunsaker's decision making.

That said, I think Dr. Gas will get done at some point. I think first we will see a supply agreement followed by the acquisition in the fall once AERO's stock price has righted itself somewhat and they can secure better financing terms. This is all JMHO. I could be completely off base. I also believe we will still see profitability in Q2 of this year. I think their next filing in a week or so will show strong(er) results year over year but they will still have lost money. Between now and then point AERO reaches profitability I expect some bridge financing or line of credit to be established so that they can have the capital to expand their marketing and distribution efforts. But again, let's not get ridiculous and say that losing money at one point in time will dictate a company's future, because that is clearly not always the case.

I also believe that more acqusitions will follow here. The name change wasn't merely superficial IMO. It was done so that the name properly reflects the path of this company. And I firmly believe they will be successful here, one step at a time. Good luck to all. And by the way, this post will also be posted on AERP YAHOO board for those who frequent that board.