Notes
Numerex Corp. (NMRX) is a wireless network service provider and a leading enabler of fixed and mobile machine-to-machine (M2M) solutions and technology. A single-source for its M2M customers, Numerex delivers real-time wireless data communications for purposes of monitoring, tracking, measuring, and intelligent management of remote assets with solutions tailored to meet the needs of each application, customer, and industry. Several markets indirectly served by the Company include alarm security, vehicle location and asset tracking, point of sale, vending, and utility management. Numerex offers its products and services primarily throughout the United States, Canada, and Mexico. The company is headquartered in Atlanta, Georgia.The industry seems to be growing rapidly:
http://www.wirelessweek.com/article.aspx?id=137070
http://www.cellular-news.com/story/24325.php
Annual growth for 2006 vs. 2005 was huge, 75% for revenue and 500% for net earnngs per share.
13JUN07 $11.10
Quarterly Report"Revenues for the first quarter of 2007 increased 20% compared to the first quarter of 2006. We continued to see growth in our wireless data products and services. Wireless data revenues increased over 24%, primarily as a result of increased product sales, compared to the first quarter last year. The increase in the current year revenues compared to the prior year is primarily attributable to growth in wireless M2M products and services. The company's growth in revenues in the first quarter was lower than expected because of reduced sales for the Company's mobile tracking solution. The decision was made in the first quarter to temporarily stop shipments of this product pending the resolution of activation and billing issues, which surfaced during the quarter. These issues have now been resolved and shipments of the product have resumed and are expected to accelerate over the course of the year.
Earnings declined: " Basic and diluted earning per common share was $0.03 for three-month period ended March 31, 2007 as compared to basic and fully diluted earnings per share of $0.04 for the three-month period ended March 31, 2006." The company attributes the decline primarily to increased expenses in marketing, and higher income tax expense. In an email, the CFO clarified a question I had regarding the increased tax expense: "...a federal and state tax provision will be recorded in every prospective quarter. This provision will be approximately 40% of our earnings before taxes." Earnings before taxes grew 40%.
VALUATION (from company site)
Price to Earnings 36.90
Price to Revenue 2.72
Price to Book 3.70
Price to Cash Flow 26.32
No analysts, so no growth estimates, PEG or forward PE. Assuming growth of 30% (low end of industry projections) results in a PEG of 1.2 which is the epitome of average.
BALANCE SHEET
Current ratio: 3
Debt/equity: 0.3
More than half its stockholder equity is intangible: mostly goodwill and patents
Yahoo's "Balance Sheet" shows no convertibles, preferreds or warrants, but the quarterly report says it has issued considerable warrants and convertible ÒnotesÓ to Laurus Master Fund.
"We believe that our existing cash and cash equivalents together with cash generated from operations will be sufficient to meet our operating requirements through at least December 31, 2007. "
A recent high-profile "strategic agreement" with GE, but no amounts specified:
http://phx.corporate-ir.net/phoenix.zhtml?c=65936&p=irol-newsArticle&t=Regular&id=1003028
Weaknesses: A growth stock with no growth estimates. A historical inability to fund its business from operations, needing instead to issue convertible notes and debt. A lot of goodwill on the balance sheet. An on-paper disadvantage for the current year, in comparison to last year, due to increased income tax expense. The income tax won't change the financial strength of the compay, but it will depress earnings growth numbers, which may depress stock price; that's part of what happened to Relm this year. A PEG ratio based on industry growth is 1.2 which is very average.
Strengths: A rapidly growing industry; most estimates put future annual growth in 30-40% range. The mix of large businesses (Sun) and small (Numerex) often leads to a lot of takeover and merger activity. It doesn't seem to anticipate more debt or dilution this year, stating current cash and cash flow will be sufficient throughout the end of this year. The balance sheet is sound.
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