AXT Inc (AXTI)

[RedStick]

The case for AXTI:

Balance Sheet on this thing is incredible. Here's a summary of some quick DD I did:

Cash/Cash Equivalents have increased in each of the past 4 quarters.

Inventory has decreased in each of the past 5 quarters, so the product is still selling even amidst tough economic times. In fact, this is one of the main things I look for for companies right now. If they can not only survive now, but either continue selling their product at a normal pace or even a quicker pace, then they will flourish as the economy recovers (if and when it does), assuming the market still finds its product valuable. The explanation point on good inventory reduction is that consumer confidence is strengthening.

Total Long-Term Debt is only 420k and Total Debt is only 496k. These debt figures have been paid down in each of the past 5 quarters (and remember that the company is still increasing its cash position). Notable is that last quarter the company reduced its Total Debt from 3.5M to the above-stated figure. With nearly 17M in cash on hand and virtually no dilution over the past 5 quarters, the company's capital structure is very strong.

*** These figures have all been taken as of the company's last reporting quarter (12/31/09). Recent filings and/or PRs should be looked to to ensure that these figures are still accurate.

Here is the link to the 10-K:

http://www.otcmarkets.com/edgar/GetFilingPdf?FilingID=7139751

Yes, they reported a loss due to a huge decrease in revenues when compared to 2008. Profit margins, however, have increased.

But the real story is in the quarterly results:

Revenues increased in every quarter last year, which causes the huge dip in year-over-year revenues to be a bit misleading. The cost of these revenues has just about leveled off, which accounts for the increasing margins.

Selling, general, and administrative expenses decreased in all four quarters, as did total operating expenses.

As revenues continue to grow and the company continues to trim down on expenses, I believe they will again be profitable in 2010. In fact, E*Trade's consensus estimate for FY'10 (which I know doesn't carry much weight, but is still worth a mention) is .22/share.

The company suffered a huge loss in the first quarter of 2009 (-.18), but was able to reduce that loss to (-.04) in the second quarter and then saw gains of .07 and .09 in the third and fourth quarters, respectively. The loss for the year is in large part due to this huge loss in the first quarter and the yearly results, without looking into the positive quarterly trends, would mistake investors into putting too much weight on that figure. In actuality, this loss is due to a higher-than-normal loss in the first quarter which has sense been not only diminished, but actually turned into a very nice gain in the fourth quarter.

So what caused the huge loss in the first quarter of 2009? Aside from general poor market conditions, the semiconductor industry as a whole suffered a huge down turn in 2008 before finally correcting after the first quarter of 2009. Thus, AXTI's Q1'09 loss (which, remember, causes the yearly results to come off as quite lopsided) is likely attributable in the most part to that fact (see chart below and notice the semiconductor and equipment industry $GSPSE) double bottomed in late '08/early '09 but has been on a tear ever since).

The fact that the company was able to trim down during a red year coupled with the fact that the market for their product has vastly improved make a great case for investing in AXTI now. The stellar balance sheet, the tremendous down payment in debt to virtually nothing, and the fact that the company has still been able to hoard vast amounts of cash are the icing on top of the icing on top of the icing on the cake.

IMO