Products Corporation (DIPC) Current Price $.50
On July 27, 1995, our Super Fast Phone Service Investors were notified to purchase 5K of DICP @ 7/16. This issue is highly speculative and risk is present. Only geared toward investors who thrive on high risk and high reward.
Digital Products Corporation (NASDAQ BB - DIPC) provides global information management solutions to the criminal justice and corrections industry, the construction trade and to multinational corporations.
The DPC Monitoring Service, Inc. division provides electronic supervision. The HMO 4 home monitoring unit uses radio frequency technology for active continuous monitoring of the presence or absence of an offender from a prescribed location. Other products include "Drive By II", a mobile RF device which enables officers to detect the presence of any transmitter worn by an offender. The "Cellulert", a peripheral device utilizing cellular telephone technology to transmit voice and date. Other products include "On Guard Wristlet/Verifier," "On Guard Plus", and "Alert Product line". Again, all the above products are used to gather information and presence of offenders under house arrest. Numerous software packages have also been developed for this segment.
The other two divisions, BGIS System Co, markets financial accounting, crew equipment and material information management systems directed at the highway and heavy utility sector of the construction and material production industry. DPC/International Business Solutions, Inc. markets software which is capable of processing multilingual, multi-currency financial, accounting and tax information. From the above data one can easily conclude that revenue growth continues quite nicely and losses continue to be reduced. Since 1991 the company has lost sizable amounts of green. We believe that this is about to change. Revenue for the Criminal Justice Segment during fiscal 95 represented 70% of total revenue and we anticipate that this trend will continue (think about the current crime problems that sweep the U.S.).
The software segment, other than the criminal justice segment, in reality has been the drain on profitability. The criminal justice division during fiscal 95 actually generated a $469K profit for the recent fiscal year, compared to a loss of $7.1 million in the fiscal year ended March 31, 1994. The software segment had an operating loss of $1.87 mil versus $2.29 mil for fiscal 94. The obvious key to the turnaround is either discontinue the separate software divisions or finally turn a profit. In our opinion the software division is the key to profitability. According to management, revenues for estimated fiscal 96 could approach $14 million. The real story is earnings. We believe that they will turn positive and may be much better than expected, but first quarter of fiscal 96, which is due out in days might show a loss.
Either way, in our opinion, owning DIPC at the current price is worth the risk. If we take a look at PSR (price to sale) and use the recommended price of 7/16 and calculate it with respect to fiscal 95 and fiscal 96E, we get values of .54 and .34, respectively. These values indicate a cheap stock. If DIPC turns a profit and we use our .08/share value and base out PE on growth rate (27%) and also a value of half that (13.5), then a share price based upon those PE values would be $2.16 and $1.08, respectively. Again, if profits come our way, this stock will "brake out" to the upside. At present the book value is .16, LTD equals 1.4 million, management controls 25 million shares and, believe it or not, there are 10,000 shareholders. This stock was once $15. It also has 24 million operating loss carryforward.
Bottom line: we like this situation. It is speculative - first quarter is a toss-up! Huge upside potential exists. We intend to monitor 5,000 shares of DIPC in our model portfolio and 900# portfolio for percentage gain performance.
Corporate number: 1-800-323-9476 - Florida 1-305-783-9600; Broker: Mike Chesler at 1-800-331-1355.
Select Financial Data - Year End March 31 1994A 1995A 1996E Revenue 8.9 mil 10.8 mil 13.5 mil Net Income/sh (Loss) (1.17) (.23) .08