An
overlooked pollution control story that offers investors a textbook
fundamentally cheap investment opportunity.
ABATIX Environmental Corp. (NASDAQ ABIX) Recommended @
$3.50/share on July 20, 1995 via our 900# service - current price
$3.875. Abatix Environmental Corp. is a full-line supplier to the
asbestos abatement, hazardous materials, industrial safety and
construction tool industries. The company has eight distribution centers
and employes 65. The company serves customers throughout the Southwest,
Midwest and Pacific Coast.
. Upon review of select financial data, it should be easy to conclude
that every year since 1993 to the present calendar year, as well as
estimated values for 1996E, that ABIX keeps growing and growing and
growing and the stock price continues to get cheaper and cheaper and
cheaper. From 1992 to 1996E revenues have grown from 11.6 million to an
estimated 31.2 million for an average growth rate of 30% (Note: 1995E
and 1996E alone do not show this rate of growth, but according to
management this is temporary. The big picture is impressive). The book
value for 1993, 1994, 1995E and 1996E, respectively, also shows very
positive results, that is, $1.57, $1.67, $2.04 and $2.53 - an overall
gain of 61%. 1996E, our share valuation would be $6.00 and $6.75,
respectively, not the current $3.75. Another important fundamental variable that to many is the most
important, that being PE, also demonstrates that ABIX is a very cheap
and undervalued situation. Upon examining PE valuations from 1993 and
1996E, respectively, our calculations indicate ABIX being valued quite
handsomely at 55x during 1993 to 27.1 during 1994 and now 8.9x and 7.0x,
respectively during 1995E and 1996E. Since near team growth rate has
slowed with respect to prior years and, of course, the industry is
somewhat out-of-favor and net income percentage of revenue is only
3.75%, we believe that a PE valuation of at least 13x would be a
conservative number to consider. If we use this value and base it upon
1995E and 1996E earnings estimates, then ABIX would trade at $5 7/16 and
$6.87, respectively.
In addition to the fundamental variables that most definitely indicate
a cheap and undervalued situation, investors should not overlook that
ABIX has no long-term debt, has been aggressively buying back ABIX
shares on the open market, that there are only 1 million shares in the
public float (management controls 55%) and management has over 25 years
of combined distribution experience. Abatix Environmental can be
followed daily in the WSJ and trades on the NASDAQ National Market
System. Overall, we
view ABIX as an excellent long-term investment opportunity with little
downside risk due to strong underlining fundamentals. We believe that
ABIX belongs in portfolios geared toward emerging growth opportunities
that prefer less risk and appealing upside potential during the next 6
to 18 months. We intend to monitor 3,000 shares in our $100,000 master
low priced portfolio and our 900# portfolio. For more information call Frank Cinati at 214-381-1146. Broker contact:
Mike Chesler at 1-800-331-1355.
ABIX Select Financial Data - Year End Dec. 31 6 mos June 30 1992 1993 1994 1994 1995 1995E 1996E Revenue 11.6 mil 19 mil 26 mil 12.9 mil 13.7 mil 27.5mil 31.2mil Income from continuing .01 .12 .25 .11 .21 .42 .53 operations Loss from discontinued (.02) (.06) (.16) (.04) -- -- -- operations Accounting change -- .01 -- -- -- -- -- Net income/sh (.01) .07 .09 .07 .21 .42 .53 Shares outstanding (mil) 2,074 2,304 2,330 2,330 2,261 2,261 2,300 Book value $1.46 1.57 1.67 1.67 1.83 2.04 2.53 P/CF-price to cash flow NA 29.91 10.82 NM NM 6.73 5.64 PSR - price to sales NA .46 .21 NM NM .30 .27 PE-price to earnings NM 55.3x 27.1x NM NM 8.9x 7.0x NA= not available, NM= not meaningful Note: 1. During 1993 an average share value of $3.875/share was used for P/CF, PSR and PE valuation. 2. During 1994 an average share value of $2.44/share was used for P/CF, PSR and PE valuations. 3. For 1995E calculations we intend to use a $3.75 valuation for all calculations. 4. For 1996E calculations we intend to use a $3.75 valuation for all calculations: P/CF, PSR and PE. 5. PE value is based upon net income/share Long term debt = Zero