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Friday, 12 January 2007
Mesa Laboratories (MLAB)

CLICK HERE FOR MY PODCAST ON MESA

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any investment decisions based on information on this website.

Earlier today I sold a sixth of my Coach (COH) holding and bought a new position in Bolt (BTJ).  While I was looking for a new position, I came across Mesa Laboratories (MLAB) and I believe it would be an excellent pick for the blog.  I chose to buy Bolt, probably because I had already written it up previously, and also because Mesa is medical stock, and quite frankly, I have quite a few medical stocks in my trading account already!  I do not own any shares nor do I have any options on this stock.

Let's take a closer look at this small company which has some interesting findings making it a nice match for my blog and my own particular criteria on picking stocks!

Mesa (MLAB) made the list of top % gainers on the NASDAQ today.  Mesa closed at $23.00/share, up $1.99 or 9.47% on the day.

What exactly does Mesa do?

According to the Yahoo "Profile" on Mesa, the company

"...engages in the design, development, acquisition, manufacture, and marketing of instruments and disposable products used in industrial applications and hemodialysis therapy. It offers data logging systems, concentration analyzers, pipeline interface detectors, flow meter products, and raven biological indicators for pharmaceutical, food, and petrochemical applications."

How did the company do in the latest quarterly report?

On November 13, 2006, Mesa reported 2nd quarter 2007 results.  Net sales grew 41% to $4.2 million from $3.0 million in the same quarter last year.  Net income increased 14% to $912,000 or $.28/diluted share, up from $801,000 or $.26/diluted share the year earlier.

How about longer-term results?

Reviewing the Morningstar.com "5-Yr Restated" financials, we can see that revenue, which grew slowly between 2002 and 2004, increasing only from $9 million to $9.1 million, has steadily increased since to $12 million in 2006 and $14 million in the trailing twelve months (TTM).

Earnings/share have increased steadily from $.59/share in 2002 to $.92/share in 2006 and $1.02/share in the TTM.  The company also initiated a dividend in 2004 at $.25/share and has increased the dividend steadily since to $.42/share in 2005, $.51/share in 2006 and $.53/share in the TTM.

This is a very small company with 3 million shares outstanding in 2002 and 3 million still in the TTM.

Free cash flow is positive although small at $3 million in 2004 and $2 million each year since.

The balance sheet is solid.  As reported by Morningstar.com, the company has $2.9 million in cash, more than enough to pay off both the $.9 million in current liabilities and the $.3 million in long-term debt combined more than 2x over.  If we combine the $2.9 million in cash with the $6.4 million in other current assets and compare it to the $.9 million in current liabilities, we can derive a current ratio of just over 10!

What about some valuation numbers?

Reviewing the Yahoo "Key Statistics" on Mesa, we can see that this stock is a micro cap stock, not even big enough to call a 'small cap'!   The market cap is currently at $72.98 million.  As defined, a micro cap stock is a stock with a market capitalization between $50 and $300 million.  The trailing p/e is a moderate 22.59.  No PET nor any forward p/e's are reported.  With very small companies, there is often a small supply of analysts who report on and provide us with estimates.

According to the Fidelity eresearch website, Mesa carries a Price/Sales (TTM) ratio of 4.58, a bit richer than the industry average of 2.32.  However, the company is more 'profitable' than average, at least as measured by the Return on Equity (ROE) (ttm), which for MLAB is reported at 18.67%, much higher than the industry average of 8.15%.

Reviewing some more numbers on Yahoo, the company has 3.17 million shares outstanding with 2.51 million that float.  As of December 12, 2006 there were 335 shares out short representing an insignificant # of short sales.  The company does pay a not so insignificant dividend of $.32/share going forward with a forward yield of 1.6%.  The company does pay a significant portion of its earnings out in dividends with a Payout Ratio of 52% reported. No stock splits are reported on Yahoo. 

What does the chart look like?

If we review a "Point & Figure" chart on Mesa Laboratories from Stockcharts.com we actually see a price graph that looks quite strong.  the company, since bottoming at $5.50 in May, 2002, has moved fairly steadily higher, except for a bit of a correction in June to July in 2005 at around $11 to the current level of $23.  

 

Summary:  What do I think about Mesa?

This is a fascinating little company.  I am sure the stock will be more volatile than others due to the small size (3 million shares and a market cap under $100 million).  But actually the chart demonstrates the consistent strength in the stock price!

The latest quarterly report was solid.  The Morningstar.com report is very nice with stead revenue growth the past few years.  Steadier earnings growth and even a dividend that has been steadily increased.  All while maintaining a very stable number of shares.  Free cash flow, while small, is positive, and the balance sheet is beautiful.

Valuation-wise we don't have many numbers but a p/e in the low 20's for a stock like this that is growing and even pays a dividend appears reasonable imho.  Finally the chart looks strong.  Now, if only I had bought some Mesa instead of Bolt....lol.  Oh well, I cannot own them all!

Thanks so much for stopping by and visiting.  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Bob 


Posted by bobsadviceforstocks at 10:36 PM CST | Post Comment | Permalink
Updated: Saturday, 13 January 2007 5:50 PM CST

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