Hello Friends! I am sure glad you decided to stop by and see what I had to write today. Sometimes my friends ask me WHY I spend all this time writing...quite frankly, it just seems like the natural thing to be doing. I once heard a writer explain why he wrote by responding that he HAD to write. Anyway, as I like to remind all of you, I AM an amateur investor and want you all to be sure to do all of your own homework before making any investment decisions. Please also consult with your investment advisors to make sure investments discussed are suitable for you!
I came across Harvard Bioscience Inc. (HBIO) today on the lists of top % gainers. As you know if you have been reading this blog before, that is my first step in finding new ideas, scanning those top percentage gainers! HBIO, as I write, is trading at $9.14/share up $.61 or 7.14% on the day. I do not own any shares or other positions related to HBIO. In general, I like to avoid stocks under $10 due to the increased volatility, but many of these still qualify for inclusion on this BLOG.
As the money.cnn.com "Snapshot" reports, Harvard Bioscience works "...to develop, manufacture and market innovative, research enabling tools used in drug discovery at pharmaceutical and biotechnology companies, universities and government laboratories."
My next step in the process is to check the latest quarter results for the potential investment. For HBIO, on March 2, 2004, they reported fourth quarter 2003 results. For the quarter ended December 31, 2003, revenues were $24.2 million an increas of 28% over the prior year's revenue of $18.9 million. Net "GAAP" income for the quarter was $1.8 million or $.06/diluted share compared to a loss of $(974,000), or $(.03)/share in the prior year. These are very nice results on first glance.
But what about longer-term? Can this company demonstrate a track record of performance that could possibly continue into the future or was the latest quarter just a fluke? For that, I like to check on Morningstar.com, especially the "5-Yr Restated" financials. For HBIO this financial report shows a very nice steady revenue growth all the way back to 1998 when they had $12.2 million in revenue, increasing each year with the trailing twelve months coming in at $81.8 million in revenue.
Earnings/share are first reported in 2001 (this usually indicates they year the company came public), and shows a loss of $(.20)/share that year, with $.03/share reported in 2002, and $.05/share in the trailing twelve months.
Free cash flow is a bit week in this report with $2 million reported in 2000, $2 million in 2001, $(1) million in 2002, and $(1) million in the trailing twelve months.
The balance sheet looks very nice with $7.6 million in cash reported, $41.9 million in other current assets, compared to $23.2 million in current liabilities and $2.4 million in long-term liabilities.
Having cleared these hurdles, I next like to check on the valuation question. Is the price reasonable? For this, I use Yahoo, and for HBIO this report on "Key Statistics" shows a market cap of only $277.51 million. The trailing p/e is steep at 66.19, but due to the FAST growth in earnings, the forward p/e (fye 31-Dec-05) is only 22.44, thus the PEG is a reasonable 1.10. Price/sales a bit stteper at 2.95.
HBIO has 30.16 million shares outstanding with only 20.90 million of them that float. There are only 156,000 shares out short as of 3/8/04, representing only 0.75% of the float or 0.647 trading days. No cash dividend and no stock dividend are reported on Yahoo.
Finally, I have been trying to look a little at graphs to get a feel for the technical analysis, for HBIO, this "Point and Figure" chart for HBIO shows a fairly steady DECLINE in stock price between September 2001 and June, 2003, when HBIO broke out of a resistance level of approximately $4.25 and has headed higher since. The stock does not appear to be excessively over-extended.
What do I think? The stock is a bit small making the price quite volatile especially if you stay with the 8% loss rule. However, the valuation is right, the recent earnings look excellent, and the 5 year track record for HBIO is also quite good.
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