Thursday, July 26, 2007

What is DFNS downfall?

I don't like the fact of no momentum being seen in the DFNS stock price.

The big seller may be moving some of his shares but I can't imagine he can get out of all of them at these levels.

My only concerns I really have with DFNS is if they continue to have a big backlog and not moving that to revenue. (Would be disappointed with any revenue lower than $5 million this quarter.) The revenue is their for the taking just depends how they want to spread it out etc.. Things can get pushed back more and more.

And whether their margins hold up and are able to produce the profits needed. They will have a LOT more admin salaries going out due to the big revenue growths so that will hurt them a bit.

Assuming they aren't going to issue a bunch more shares to look at other businesses etc.. I think they can produce good $$$.

Assuming one time charges and currency exchanges don't effect profits too much I would think .02+ is doable for the quarter. Which would mean roughly .04 eps for the year so far. I think they can do at least that in the 2nd half of the year as well. Which means probably a .08-.10EPS for the year.
Based on a 10x PE ratio that is a .80-$1 stock. I think this stock could command a 12-15x PE though since it is growing at such a good rate. (revenue should grow roughly 60-80% for the year)

At a 12 x PE on .08-10EPS is .96-$1.20
At a 15x PE on .08-.10EPS is $1.20-$1.50

Worst case unless something goes really bad I would imagine they would earn at least .06 EPS for the year. Even with a 10x PE that is a .60 stock which is where we sit now.

I think the issue with many investors is they want to see the earnings continue to grow. 1 profitable quarter doesn't make a trend. But 2 will and I think we could see some good movement then.

Were in from .50 on the stockdoubling project so unless the wheels fall off for some reason I don't see much downside on that price. Based on what the company is saying in their news releases revenues and orders they foresee growing nicely over the next while.

August 15th or so should be interesting for the stock. I can't wait to see what happens.

I won't be available tomorrow. (Unless something big happens I won't update the blog.)

Have a great weekend
Steve Hoven

No comments: