Another Buy From the Conviction List (ASEI)
Well, in the month or so since I posted my four-company "conviction buy" list, I've had the opportunity to buy two of those companies at even lower prices. The first was Gol Linhas Aereas a few weeks ago, and the second is American Science and Engineering (ASEI), which I picked up additional shares of this morning.
While I have been considering adding to my ASEI holdings for several months, today was the first time that I saw a stock price that I couldn't refuse. On no significant news that I'm aware of, the shares dipped by close to 5% today, and I picked up my additional shares at $48.09. This brings my average cost up to $46.55 (though I actually made my first of many purchases of ASEI shares above today's level, at $52 last year).
So why is the share price going down today? I have no real idea. It could just be a reaction to the fact that the order they announced, for $2 million worth of ZBVs, was pretty puny in the grand scheme of things ... or maybe there's some big institutional selling that I haven't seen yet.
As regards the ongoing announcement of contract wins -- their backlog of orders is still in the neighborhood of $100 million, so I don't much care what rules they follow to determine which orders to announce in press releases (they noted on a conference call a while back that they no longer announce all contracts, but will announce "more significant" ones). Generally, the ones they announce are larger than this of late, or are for "new" business with different countries or agencies, but I won't read too much into the tea leaves here.
I see no reason to doubt the long term performance of the company going forward -- their earnings will undoubtedly remain very lumpy, but in the big picture I expect that lumpiness to average out to continued significant growth. Not always year over year growth for any given quarter, since they occasionally have blowout quarters with big orders that won't be replicated 12 months later, as we've seen recently, but certainly growth writ large.
And the shares reflect some severe pessimism that is largely due, I think, to the lumpiness of earnings and the fact that management doesn't give much in the way of guidance and gets somewhat bristly on the conference calls when asked to do so (largely because they don't necessarily know what quarters will bring which business). Some good articles have been published on Seeking Alpha regarding ASEI, including a note about a positive analyst note last month and a more recent detailed analysis of their conference calls.
The PE ratio of 18 going forward is based on what I think are pessimistic numbers, but the PE of 20 for the trailing year could certainly be interpreted as a bargain given the company's growth potential.
I focus on a few things:
1, the big CAARS program for detecting nuclear contraband at US ports is in its infancy, and ASEI stands to potentially open up a new very lucrative line of business if it is successful. There is $2.5 billion in contracts to fight for in this business, and I expect ASEI to get at least a strong portion of that.
2, on a related front, the Omniview Gantry is the poster child for container scanning at ports -- if political pressure can continue to push for scanning more of the cargo that enters US ports, this product is the logical candidate to be rolled out.
3, the death knell for the Z-Backscatter Van, ASEI's core product, has been sounded multiple times -- but the orders keep coming in. I am encouraged by the ongoing development of the "ruggedized" ZBV for harsh conditions, and by the ongoing domestic adoption of this tool at border crossings and other security checkpoints.
and 4, there exist plenty of upside opportunities where expectations are fairly low -- including drive-through scanners, package scanners and personnel scanners. They had an order earlier this year for the Z-Portal system that can be used at drive-through checkpoints, and it's possible that this could build into a larger business. The package scanning products are in use in some government buildings and might be a more reliable product than the ones used in most airports and similar secure areas, and the personnel scanning, which is being tested by the FAA at one airport, is another potential piece of business. I expect to see some eventual success from the package scanning product line and perhaps from the portal drive-through line, but would guess that the personal scanners probably won't get a wide rollout due to time and privacy concerns (the scan takes a short time, and it reveals a lot about the human body, even in "privatized" mode).
So I still see plenty of long-term upside for this reasonably-priced technology leader that feeds a growing need for port, building and mobile security scanning -- especially as budgets for Iraq and Homeland Security remain on a growth trend. It should also be noted that as of last month there was a big short position -- close to 20% of the float -- so that might mean either I'm misinterpreting the company's future or there's a possibility of a nice short squeeze. I could certainly be wrong, but I want to stick with this one for a few years and see if my guesses play out.
While I have been considering adding to my ASEI holdings for several months, today was the first time that I saw a stock price that I couldn't refuse. On no significant news that I'm aware of, the shares dipped by close to 5% today, and I picked up my additional shares at $48.09. This brings my average cost up to $46.55 (though I actually made my first of many purchases of ASEI shares above today's level, at $52 last year).
So why is the share price going down today? I have no real idea. It could just be a reaction to the fact that the order they announced, for $2 million worth of ZBVs, was pretty puny in the grand scheme of things ... or maybe there's some big institutional selling that I haven't seen yet.
As regards the ongoing announcement of contract wins -- their backlog of orders is still in the neighborhood of $100 million, so I don't much care what rules they follow to determine which orders to announce in press releases (they noted on a conference call a while back that they no longer announce all contracts, but will announce "more significant" ones). Generally, the ones they announce are larger than this of late, or are for "new" business with different countries or agencies, but I won't read too much into the tea leaves here.
I see no reason to doubt the long term performance of the company going forward -- their earnings will undoubtedly remain very lumpy, but in the big picture I expect that lumpiness to average out to continued significant growth. Not always year over year growth for any given quarter, since they occasionally have blowout quarters with big orders that won't be replicated 12 months later, as we've seen recently, but certainly growth writ large.
And the shares reflect some severe pessimism that is largely due, I think, to the lumpiness of earnings and the fact that management doesn't give much in the way of guidance and gets somewhat bristly on the conference calls when asked to do so (largely because they don't necessarily know what quarters will bring which business). Some good articles have been published on Seeking Alpha regarding ASEI, including a note about a positive analyst note last month and a more recent detailed analysis of their conference calls.
The PE ratio of 18 going forward is based on what I think are pessimistic numbers, but the PE of 20 for the trailing year could certainly be interpreted as a bargain given the company's growth potential.
I focus on a few things:
1, the big CAARS program for detecting nuclear contraband at US ports is in its infancy, and ASEI stands to potentially open up a new very lucrative line of business if it is successful. There is $2.5 billion in contracts to fight for in this business, and I expect ASEI to get at least a strong portion of that.
2, on a related front, the Omniview Gantry is the poster child for container scanning at ports -- if political pressure can continue to push for scanning more of the cargo that enters US ports, this product is the logical candidate to be rolled out.
3, the death knell for the Z-Backscatter Van, ASEI's core product, has been sounded multiple times -- but the orders keep coming in. I am encouraged by the ongoing development of the "ruggedized" ZBV for harsh conditions, and by the ongoing domestic adoption of this tool at border crossings and other security checkpoints.
and 4, there exist plenty of upside opportunities where expectations are fairly low -- including drive-through scanners, package scanners and personnel scanners. They had an order earlier this year for the Z-Portal system that can be used at drive-through checkpoints, and it's possible that this could build into a larger business. The package scanning products are in use in some government buildings and might be a more reliable product than the ones used in most airports and similar secure areas, and the personnel scanning, which is being tested by the FAA at one airport, is another potential piece of business. I expect to see some eventual success from the package scanning product line and perhaps from the portal drive-through line, but would guess that the personal scanners probably won't get a wide rollout due to time and privacy concerns (the scan takes a short time, and it reveals a lot about the human body, even in "privatized" mode).
So I still see plenty of long-term upside for this reasonably-priced technology leader that feeds a growing need for port, building and mobile security scanning -- especially as budgets for Iraq and Homeland Security remain on a growth trend. It should also be noted that as of last month there was a big short position -- close to 20% of the float -- so that might mean either I'm misinterpreting the company's future or there's a possibility of a nice short squeeze. I could certainly be wrong, but I want to stick with this one for a few years and see if my guesses play out.
This article posted by One Guy @ 4/25/2007 12:20:00 PM 0 comments
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