A. QNTM - NASDAQ B. SOFP - NASDAQ BB C. CYR - NYSE D. PWP.WS. - NYSE
DATA 1, Inc. (DMEM - $1.125) NASDAQ BB DATA 1, Inc.
(DMEM) is an integrated computer memory company that designs, manufactures and distributes add-in/add-on memory upgrades for computer systems and computer peripherals ranging from hand-helds through personal computers (PC’s) and on up to high end workstations.
It is not that often that S. A. Advisory unearths a diamond in a field of thousands of stocks - obscurity and the inefficiency of the market place has created the opportunity that DMEM possesses. DMEM has had revenue growth during the past few years that has exploded from inception, that is, March 23, 1992 - revenues have grown from $365 K ending fiscal 92 to $12.4 million for fiscal 93 to $41.4 million ending fiscal 94. (At present there are only 7.7 million shares outstanding and the public owns 1 million shares - the rest is held by the inside).
During 1992 DMEM lost (.21), while fiscal 93 losses were reduced to (.14). The company turned profitable during fiscal 94 and earned .07. During fiscal 95 the company expects to have revenues of at least $50 million and may reach $70 million - profits after taxes are anticipated to be .23 and .45, respectively. (There are many variables that must be considered in order for DMEM to reach $70 million). We, of course, are more conservative and prefer to use the $50 million revenue and .23 net earnings/share for our calculations. (Note: first quarter of fiscal 95 revenues were $10.1 million and net loss was $34,500 - first quarter always the weakest - in addition, an extraordinary nonrecurring expense caused a small negative earnings picture. During February and March, 1995 revenues expanded and margins improved and profitability returned).
Please keep in mind that the revenue and earnings estimates are management (If the insiders don’t know, who does????). If we analyze this opportunity fundamentally, a very compelling picture emerges that may offer astute investors the opportunity to see stock appreciation of 400% within one year.
We at S. A. Advisory seldom throw numbers out like this to our investors, but in this case the numbers speak for themselves.
At present DMEM trades at around $1.125/share - if the company generates revenue and earnings of $50 million and .23/share an extremely attractive opportunity exists!
Based upon 7.7 million outstanding, a PSR value that is generated equals .17. Based upon our calculations, DMEM is only trading at 17% of revenue. This is totally ridiculous! It should be trading at least at 40% - 75% of revenue. When you consider the dramatic growth past and present, at a PSR of .5 or .75 the stock value would be $3 to $5, respectively.
AA DATA 1, Inc. (DMEM) Select Financial Data - Year Ending Dec. 31 1992A 1993A 1994A 1995E Revenue $365K 12.4 mil 41.6 mil 50 mil Net Income/share (loss) (.21) (.14) .07 .23 Shares outstanding 3.5 mil 6.9 mil 7.7 mil 7.7 mil Cash Flow/sh (loss)1 (0.20) (.12) .085 .25 Average shate price2 $2.00 $3.25 $3.15 .78 P/CF3 NM NM 37x 4.5x4 PSR5 19. 1.8 .58 .174 PE NM NM 45x 4.89x4 A = value used for current calculations $1.125 1. Cash flow - net income (loss) and depreciation and amortization 2. Average value of hare price during specific year - lowest bid plus highest offer divided by 2 3. Price/cash flow 4. Based upon current share price 5. Price to sale ratio - a value of 1 is considered cheap and undervalued 6. Price to earning ratio NM = Not meaningful NA= Not available
A more important element to analyze, which has greater clout as an investment variable is PE ratio. Our estimated PE value for fiscal 95 based upon earnings of .23 and a current share price of $1.125 equals a shockingly low 4.89x. If DMEM was to trade at say the S&P value for only profitable stocks, which at this time is 14.3x, then DMEM would trade at $3.28. If we based our PE on growth rate and isolate conservative revenue growth from year end fiscal 94 to year end fiscal 95, then our growth rate equals 25% - this revenue number for fiscal 95 is conservative.
If our PE value equals our growth rate and we use a value of 25, then our share valuation could approach $5.75 or higher. At present, LTD is a mere 7.5% of fiscal 94 and 6% of estimated fiscal 95 projections. Book value is a little weak, but should appreciate proportionately with earnings. Since inventory is kept lean, equity is not bloated or misleading.
Upon review and close examination of Box AA, an astute investor should be able to conclude that due to the inefficiency of the low price NASDAQ Bulletin Board, which are usually thinly traded and obscure, share price volatility usually has little in common with the true value of the company. Concerning DATA 1, Inc., the greater the revenue and earnings, the cheaper the stock has gotten, which, of course, has created in our opinion an excellent discounted value with huge upside potential during the 6 to 15 months
**Special note: June 2, 1995 - according to a company spokesperson, revenues to date during the first 5 months of 1995 have exceeded $16 million and may be as high as $18 million - income/share is positive - third and especially fourth quarter will show greatest revenue and earnings growth.
In addition, the company has recently secured an additional $750K credit line - additional lines are being sought and positive response is expected during the next few weeks.
** On February 20, 1995, DMEM received a major contract with Digital Equipment (DEC - NYSE - we initially recommended DEC @ 19 5/8 on 7-2-94 current price $44.00) - under the terms of the agreement, Digital will manufacture and package a focused set of networking products to be sold under the DATA 1 label to resellers, distributors and original equipment manufacturers. Products include a full range of network adapter cards (contract size $9 million).
An extremely bullish development.
We believe that DATA 1 Inc. is going to be a huge winner. This stock belongs in a well-rounded portfolio as a core holding looking for superior upside potential with very limited downside risk. We are monitoring 10,000 shares in our model 900# and Master Portfolio for percentage gain performance. You should not miss owning this winner.
Corporate: 1-800-642-1526, 813-751-3336.
Broker Contact: Mike Chesler at 1-800-331-1355.
Walbro Corporation produces a wide range of fuel systems and components through two subsidiaries: Walbro Automotive manufactures, a variety of fuel storage and delivery products for the automotive OEM market; Walbro Management Corp manufactures carburetors and ignition systems for small engines. Recent Developments
4-10-95: The company announced that it had entered into a definite agreement to acquire the Fuel Systems Business of Dyno Industries AS, Oslo, Norway. Its Fuel Systems Business supplies plastic fuel tanks to most European vehicle manufacturers through its operations in France, Spain, Norway, Great Britain, Germany, and Belgium. Fuel Systems Business sales were approximately US $175 million in 1994
The price of this acquisition of Dyno’s Fuel Systems Business will be approximately US $124 million. The transaction is expected to close during the summer of 1995. The acquisition will be financed through a combination of secured bank financing and institutionally placed unsecured senior debt.
According to a spokesperson for WALB . . . "the acquisition of Dyno's plastic fuel tank operations will provide a significant enhancement of WALB's European presence. Walbro has greatly expanded its fuel storage and delivery systems capabilities in North America with the addition of plastic fuel tank manufacturing and with this acquisition it will allow for technological advancements to be integrated into the European market place.
Walbro Corp (WALB) Select Financial Data - - Chart A Current Price $20.00 1993A 1994A 1995E 1996E Revenue 273 mil 325 mil 355 mil 380 mil Net Income/share (loss) 1.13 1.70 2.10 2.35 Shares outstanding 8.55 mil 8.56 mil 8.6 8.8 Book Value 13.35 14.94 17.45 19.30 PE 17.6 11.7 9.5 8.5 P/CF 6.4 5.8 5.1 4.5 Dividend .40 .40 .42 .46 Price to Sales .6 .5 .48 .46 Note: All calcuations are based upon the current share price of $20.00 Very Bullish Development: Note: All revenue estimates do not include recent pending acquisition (Dyno Industries' Fuel System business, which had revenues in excess of $175 million
Walbro Corp Select Financial Data - Chart B First quarter ended March 31 1995 1994 Revenue 98.2 mil 8.2 mil Net Income/share .59 .52 Shares outstanding 8.6 8.6 Book Value $15.50 $14.87
Fundamental Comparison of Walbro (WALB), Arwin Industries (ARV), Dana Corp. (DCN), and Varity Corp. (VAT) Chart C COMPANY Symbol Share Price Earnings Price/Cash Price to PE 1995E Flow 1995E Sale 1995E Walbro Corp WALB $20 $2.10/9.5x 5.1 .48 1. Arwin Industries ARV 22 3/4 2.30/9.9x 3.9 .24 2. Varity Corp. VAT 43 3/8 3.45/12.5x 7.2 .68 3. Dana Corp. DCN 28 2.60/10.7x 6 4 1. Arwin - is the nation's leading manufacturer of emission and ride control systems. About 50% of domestic cars are equipped with Arwin mufflers. 2. Varity - a leading producer of brake components for passenger cars and light trucks - other segment makes diesel engines. 3. Dana - produces systems and components for trucks, autos, mobile, off-road and industrial vehicles; i.e. axles, frames, engine parts, clutches, etc.
Walbro also has a joint venture with Marwal Systems (France), a supplier of fuel pumps, fuel modules, fuel tank level sensors and a variety of fuel systems products that are part of the fuel tank assembly.
Walbro (WALB) is truly a worldwide player with joint ventures in France, Japan, Korea, China and Brazil. Upon review of select financial data in Chart A, it is easy to conclude that WALB continues to get cheaper as the company's performance with respect to revenue and earnings continue to show very promising growth. It should be noted that our calculations with respect to fiscal 95 and fiscal 96 do not even take into account the recently announced acquisition that will in essence increase the company's revenue by some 50% - in addition, foreign sales will probably account for at least 50% of the estimated $500 million in total sales (once acquisition is completed). Based upon our fundamental variables, that is, PE, P/CF, PSR and book value, Walbro's value of 9.5x, 5.1x, .48 and $17.45, respectively, should demonstrate to even the neophyte that WALB is very cheap with little downside risk and huge reward potential during the next 12 - 36 months.
Upon review of Chart C, Walbro is compared to ARV, VAT and DCN (related auto part industry). It should be easy to conclude that the whole group is cheap when compared to other industrial groups or even market indexes.
The stocks in the Auto Parts (OEM) Industry have been clobbered during the past 6 to 8 months as a result of the fear of higher interest rates choking off the booming auto cycle. In our opinion, this creates a buying opportunity for some of these issues. The average car on the U.S. road is older than ever before. We believe that strong vehicle demand will continue even at a slower pace as people are forced to replace their "junkers". It should also be noted that an expanding car cycle overseas also supports the market for parts as well as new cars. All bodes well in our opinion for Walbro - currently trading at near its 52 week low, fundamentals indicating limited downside risk - about to increase revenue base by 50% - a world leader in plastic gas tank technology and of course totally overlooked by the Wall Street herd. We like it, believe in it, own it and expect to profit from it handsomely. We will be monitoring WALB in our 900# portfolio for percentage gain performance
Corporate number: 517-872-2131, Mr. Hittler.
Broker contact: Greg Nelson 1-800-453-9408 .