Monday, November 19, 2007


Hello StockDoubling members,

I wanted to write today about why I still like DFNS.

If you take a step back and assume today was the first day you heard of DFNS here is what you have.

The company has roughly 29 million shares. And is asking .39 (how much you could buy the stock for right now) So 29 million x .39 = $11.3 million market cap for the company.

The company has already done $14.2 million in sales for the 9 months. And say they finish the year with a TOTAL of $17 million in revenue. Normally I look for stocks that are less than 2 Price to sales ratio. Well if you take $11.3 million market cap divided by $17 million in sales you could up with a .66 Price to sales ratio. Well below even 1!
A 2x P/S ratio would mean the marketcap is $34 million. Which is a triple from the current stock price levels!

Next looking at Book value the company has a book value of about .24 per share. The stock trading at .39 so the price to book is 1.6x Price to book. Yes before it was trading higher than 2x Price to book but I will talk about the reasons in the next section.

Next I look at growth is the company growing quarterly and yearly growth? The answer is a big YES!!
The company did $10.6 million in revenue last year. This year they should do around $17 million! That is a 60% increase in revenues year over year. Last year they lost roughly .01 per share. This year so far they have earned .042 EPS and even with an OK quarter could make it .05 for the year.

This company has earnings. Based on the current earnings of .042 for the 9 months we are still trading under 10x PE for a company that is growing around 60% for the year! If they do .05 for the year that is around a 8x P/E ratio. Assuming growth continues (not at 60% a year but continues to grow strong) a 12x PE isn't unreasonable. And that being said we should be at MINIMUM .50 right now.

That is why I wouldn't sell a share at these prices. If I had never heard of DFNS until today I would seriously buy this stock for the stock doubling project. Again unless sales totally dry up I don't see a ton of downside to this stock. Book value is still .24 and revenue is still $14 million even if they didn't have 1 more dollar of revenue for the year.

The 3rd quarter was the 2nd highest quarter they have had in a long time.

I will hopefully contact the company this week and ask a few questions and get back to you with the answers etc..

Again unless the company comes out with news that sales are drying up I see no reason why this stock isn't in the mid/high .40's by the end of the year which is a 15-25% return in that time.

I wish you the best in your trading.

Happy Thanksgiving if I don't talk to you before then.

Steve Hoven

1 comment:

Anonymous said...

Unfortunatly people may be looking at what is happening in Isreal. With a relative calm in the area means there may be less need for the product DFNS is selling... just a thought