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I was looking through the list of top % gainers on the NASDAQ this afternoon and noted that an 'old favorite' of mine, Abaxis (ABAX), was one of the top % gainers, closing at $20.57, up $3.57 or 21% on the day.
I first posted ABAXIS on Stock Picks Bob's Advice on September 26, 2003, when the stock was trading at $13.40. With today's close at $20.57, this represents an appreciation of $7.17 or 53.5% since posting. Looking through some of the underlying 'numbers' on the stock, it appears to still deserve a place on this blog. I do not own any shares or options on this stock. Let me review some of the recent information that I found.
What exactly does this company do?
According to the Abaxis "Profile" on Yahoo, the company
"...engages in the development, manufacture, and marketing of portable blood analysis systems for use in veterinary or human patient-care setting to provide clinicians with blood constituent measurements. Its primary product is blood analysis system, consisting of a 6.9 kilogram analyzer and a series of single-use plastic discs, called reagent discs that contain chemicals required to perform a panel of up to 13 tests on veterinary patients and 14 tests on human patients."
How did the company do in the latest quarter?
As is a common factor in many of the stocks making strong moves higher, it was the announcement of quarterly results which drove the stock higher on Friday. After the close of trading on Thursday, the company announced 3rd quarter 2007 results. For the quarter ended December 31, 2006, revenues came in at $22.0 million, up 26% over last year's $17.4 million. Net income was up nearly 50% at $7.3 million, compared with $5.2 million the year earlier. Diluted net income came in at $.13/share, up from $.09/share last year same period.
This earnings result beat expectations of $.12/share.
How have they done longer-term?
Looking at the Morningstar.com "5-Yr Restated" financials, we can see that revenue has grown steadily from $31 million in 2002 to $69 million in 2006 and $75 million in the trailing twelve months (TTM).
Earnings, initially a bit erratic, increasing from $.02/share in 2002 to $1.16/share in 2004, dipped to $.22/share in 2005 but then rebounded to $.35/share in 2006 and $.41/share in the TTM.
The company has increased its relatively small float, with 14 million shares reported in 2002, 20 million in 2006 and 21 million in the TTM. This represents a 50% increase in shares outstanding while revenue climbed 150% and earnings were up 2000%. This is an acceptable dilution relative to the other financial results imho. In addition, the dilution has slowed considerably the last few years.
Free cash flow has been positive and increasing the past few years. $6 million reported in 2004 and $7 million in 2006, $8 million in the TTM.
The balance sheet is solid with $35.9 million in cash reported by Morningstar. This is enough to pay off both the $9.5 million in current liabilities and the $1.6 million in long-term liabilities almost 3x over! In fact, if we calculate the current ratio, adding the $35.9 million in cash with the $29.5 million in other current assets resulting in a total of $65.4 million, which when compared to the $9.5 million in current liabilities yields a ratio of 6.9, one of the strongest current ratios on this entire blog.
What about some valuation numbers?
Reviewing the Yahoo "Key Statistics" on ABAX, we can see that this is a small cap stock with a market capitalization of only $427.03 million. The trailing p/e is a rich 51.68, but the earnings are increasing so quickly that the forward p/e (fye 31-Mar-08) is a much more reasonable 28.57. In fact the PEG (5 yr expected) is also a reasonable (between 1.0 and 1.5 is reasonable from my perspective) 1.34.
According to the Fidelity.com eresearch website, the company has a Price/Sales ratio (TTM) of 4.40, way below the industry average of 22.86. Unfortunately, in terms of profitability, as measured by the Return on Equity (ROE) (TTM), the company has a ROE of 11.82% below the industry average of 31.03%.
Finishing up with Yahoo, we can see that there are 20.76 million shares outstanding and 20.17 million that float. Interestingly, there are 2.56 million shares out short (as of 1/9/07) representing 12.8% of the float or 16.5 trading days of volume. Using my own 3 day rule for short interest, this is quite significant and would well explain today's sharp rise. In the face of strong earnings, the short-sellers were "squeezed" and as they rushed to cover their shorts by purchasing shares on the market, they likely pressured the stock higher---squeezing other short-sellers in the process. Just a guess, but it sure looks like a bit of a panic with that 21% rise today!
No stock dividend is reported and no stock splits are noted on Yahoo.
How about a chart?
If we look at a "Point & Figure" chart on Abaxis from StockCharts.com, we can see that the stock which traded as low as $2.50 in July, 2002, climbed sharply in 2003 to $21 by December. The stock pulled back during much of 2004 and early 2005 dipping to a low of $7.50 in April, 2005. Since then the stock has been moving higher to a high of $26 in April, 2006, only to pull back to the $16.50 level before now moving higher once again. It has been a volatile stock to watch!
Summary: What do I think?
Well, in a word, I still like this stock! They reported solid earnings yesterday exceeding expectations. They have been steadily increasing revenue. Although earnings have been a bit more erratic, they also have been growing their earnings steadily at least for the past 3 years. The company is spinning of nice free cash and has a very solid balance sheet. They have expanded their float somewhat but have grown revenue and especially earnings much faster.
Valuation-wise, the p/e is a bit rich (over 50) but the company is growing so fast that the PEG comes in at a nice 1.34. The Price/Sales is quite low for its group, although the ROE is a bit weaker than the average company as well. Finally, there are a lot of short-sellers on this stock and it is a set up for a squeeze. They had nearly 1.5 million shares traded today, still not enough volume to account for the 2.5+ million shares out short as of a couple of weeks ago! Thus, if the stock continues to show strength, there may be a bit of a panic among the short-sellers that have not covered yet. Just a guess.....but I guess that is a reasonable analysis. Finally, the chart, while a bit erratic....one could call it 'wide and loose',
In summary, this is the kind of company I would love to have in my own portfolio, but unfortunately, I don't have a buy signal to add a position and shall be 'sitting on my hands'.
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Have a great weekend everyone!