NAII
FWIW I have been buying back my shares the last couple of days, in the low 9's (sub $9.50). After selling out in the $11.60's worried about earnings because they were late, I decided to get back in roughly 20% cheaper. here's why.
1) NAII high margin business is doing just fine, and the keep in mind this business is dealing with a 1 million a quarter in patent legal expenses versus much less in the previous year. Yet that business earned over 2.3 million last quarter, and continues to grow.
2) NAII Contract manufacturing business has been declining for the last several quarters, yet earnings have been fine. even if q3 really stinks let say use 18 million and say 7 million for high margin business given historical margins of both business units I would suspect earning of .27-.35 at the possible trough of the business. I expect q4 to rebound back to about .37-.45 range, and I expect the next fy to be in the .40-.50 range a quarter.
3) Now the concerns, 1 the company lost some credibility with that big of miss on guidance going from 20-30%, to 5-10%, well to a degree they would be right, it is gonna take time for them to earn that back. I also think contract manufacturing is probably a hard business to make long-term predictions of where revs are gonna go from quarter to quarter, and for those that are worried about contract manufacturing going away I believe we see contract manufacturing explode it went from like 16 million last year at one point to approaching 30 million at the peak, so could of their main clients built up some inventory over those quarters probably hence demand being a little weaker for a quarter or two in this business is probably not a sign of disaster being imminent but rather just a reduction of inventories of their customers, who sometimes buy a bunch perhaps to save on volume and then let the inventory drop off a bit and then they stock up again. At least that is what I'm thinking.
Conclusion: NAII is very attractive here, but you have to have patience at this point, this stock in the 9's and I would buy more if we seen the 8's. I believe earnings will rebound, and I believe too much has been made of the contract manufacturing business, about 10% of the revs is profit, where about 35% on the high margin business (and that is with very high legal expenses, so it doesn't take a rocket scientist to figure out which one is more important to grow when you want profitability to go higher. All is just my opinion, and I could always be wrong though.
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