Costar Technologies, Inc (CSTI) is a rapidly growing commercial security products manufacturer that I believe has the potential to be a multi-bagger. Their products are used in anything from a small installation like a coffee shop to a large installation like a WalMart. They also have a smaller business segment that provides industrial vision products which are mainly used in production lines. Below is some more information on my investment thesis:
1. Great earnings & inexpensive - Costar made $1.43/share YTD through Q3 including $0.72/share in Q3. They are heading into their seasonally weak quarter. In the fourth quarter I suspect they will have earnings somewhere in the range of break even to $0.50/share. My best guess is that they will make $0.25/share. At the low end of my Q4 earnings expectations they will be trading at only seven times earnings. With my best guess for Q4 earnings, they will be trading at only six times earnings. In any case, they are trading at a very low multiple. 2. Attractive Present and Future Revenue Growth – YTD revenue growth has been very impressive at 44%. This growth is due to a number of factors including: the growth of the network video market, management's execution of a growth plan, and the slowly improving economy. Research external to the company estimates that the long-term growth potential for the network video market is 20-25% annually. See the August letter from the President for more information.
The company also has a presentation on their web site which they presented at the AGM. Among other things, this presentation shows their past, present, and future growth plans. The link for this presentation is as follows:
http://www.costartechnologies.com/docs/Annual_Stockholders_Meeting_2013_v6.pdf 3. Balance Sheet – They have a very strong balance sheet with a book value of $6.93/share, tangible book value of $5.61/share, and cash of $1.78/share. They have no debt and also have an unused $1M line of credit. 4. Management Pedigree – James Pritchett was part of a management team that grew another company in the space named Ultrak, Inc. from a small company to a very large company. I believe there is a great chance of a repeat performance. 5. Potential to resume SEC reporting – The company was an SEC reporter until 2010 when they stopped reporting due to their financial struggles. However, they have continued to publish reports via otcmarkets. I think there is a strong chance that with their significantly improved financial situation that they will resume SEC reporting. I also think that the next step after that could be an uplist.
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