Alloy Steel Inc. (fka AYSI)

[gilead23]

ab and inventory

This is a very good analysis however I disagree with your conclusions for a couple of reasons.

First while there is no direct historical correlation between inventory and subsequent quarterly results none of those previous numbers really represent an abberation in finished goods numbers. This quarters numbers did and were more than 2 times the historical peak. Its true that FG is not guaranteed to drop this Q however if you are basing your inventory analysis on historical numbers you would have to assume finished goods drops roughly 500k just to get down to the previous historical peak which would add 1 to 1.2 million in results.

In addition this quarters inventory level coincides with a sudden dramatic drop in sales in the quarter that experienced the inventory build. The previous cases don't seem to show that pattern. In fact it appears those inventory builds were associated with increasing sales as you note. The difference in the two periods is the company is effectively maxed out in terms of capacity. My guess on this is that previously an inventory build was no big deal because they had lots of capacity. They could afford to build product 2 months ahead and let it sit. Today they are peaked out in terms of capacity so literally an order that doesn't ship prevents other revenue from being recognized because they cannot produce another order. That may explain why inventory builds did not have revenue impact in the building quarter but do now.