In the beginning, cell phones were just phones. And that was good enough. Now they take pictures and shoot short video clips. Or they let you play games and surf the net to download cool ring tones.
Down the road, your phone will basically be a full-fledged multimedia center – sort of like a TV, DVD player and iPod wrapped up into one. It’s all part of the evolution of mobile phone operators as they morph from being simple phone service providers to outright media companies.
There’s good reason for this change. With competition knocking the profit margins out of basic phone service, these companies know they have to move into higher-margin media content to thrive. Besides, people will always want cooler toys.
Behind the scenes, however, these new features are putting fresh demands on the guts of the cell phone. In particular, memory and processors will have to become a lot more robust and flexible.
Where will all the computing power and storage come from? Right now, industry observers are watching as phone providers re-work combinations of different kinds of memory to get the job done. One format, called NOR, is good at storing application code. Another, called NAND, is a lot slower, but it is cheaper and good at storing data – like songs inside portable music players.
A third way
A chip company recently spun off from Advanced Micro Devices (AMD), meanwhile, has been working hard using a proprietary technology to find a third way. Known as Spansion (SPSN), the company is applying a technology called MirrorBit, to create a hybrid of NOR and NAND. The hybrid is called MirrorBit ORNAND.
Spansion believes MirrorBit ORNAND is faster and more reliable than current forms of memory used in cell phones. So it should be better at supporting multimedia features. The technology is also “scalable,” which means handset designers can scale the flash memory they order depending on how complex they want their phones to be.
Industry analysts and investors are not so sure about all this. In a recent note on Spansion, Deutsche Bank Securities Ben Lynch wonders whether MirrorBit ORNAND will be a success. He notes that the new approach is only now being tested by customers with no real public feedback to date. Many investors seem to share the uncertainty. Spansion was spun out in December, but to get the deal done banks had to lower the offer price, says Lynch.
Buoyant insiders
Insiders, in contrast, are fully confident. “We had to invest a ton of money without having instant gratification,” chief executive Bertrand Cambou told me in a recent interview. In short, he says, the company has been in research and development mode, with little revenue to show for it. But all that is about to change, he believes. “Now we are at a position where we are ready to blossom and explode as a powerhouse in this space,” says Cambou.
The cynic’s view, of course, is that chief executives are always bullish on their business. But Cambou is a bull who puts his money where his mouth is, and that’s exactly what we look for here at Insiders Corner.
Shortly after his company came public, he purchased $653,000 worth of the stock at around $13. A director also made a big purchase at about $15.60 recently, rounding out the total insider buying so far to $1 million. That’s a good signal.
Of course, not every cell phone user is going to want to put a media center in his pocket. But many will. How many? A cell phone market strategy consultant called iGillottResearch estimates that in four years, one in six handsets will have processors, memory and operating systems with computing capabilities similar to those found in laptops.
But even lesser phones can use Spansion’s technology – and growth in the sector should remain robust, predicts iGillottResearch. The firm estimates that 1.2 billion handsets will be sold in 2010, compared to 808 million last year. Spansion memory will also be used in automobiles, smart cards, and other devices beyond cell phones.
The bottom line: The best time to own a tech company is right in front of a new product cycle – especially one linked to a hot market – before everyone else catches on. That’s what you have with Spansion and its memory product for cell phones turning into media centers. Of course, you never know if a new technology will really be a hit. But when insiders step up and place big bets with their own money, it’s a powerful sign. I’d buy right hear near $15 per share. But with so much volatility in the chip sector of late, and the natural volatility of recent offerings, you might be able to get the stock lower, too.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
Thursday, February 23, 2006
Thursday, February 16, 2006
Reloading the Insider Matrix
As any investor can tell you, the purpose of a stop loss order is to set an automatic trigger that gets you out of a stock without emotional drama when it starts to sink – so your losses don’t multiply.
It’s simply too easy to trick yourself into staying with a losing position that chips away at your balance daily – as you cling to hope.
That’s why, as a rule, we dump positions in the Insiders Corner portfolio whenever they decline 25%. No questions asked. So it hardly makes sense to circle back now and reopen positions that have stopped out.
But I am going to do it anyway with two stocks that tanked in the past few months and stopped out: Peregrine Pharmaceuticals (PPHM) and Fossil (FOSL), a retailer.
Peregrine Pharmaceuticals
We suggested Peregrine last summer at around $1.25 (click here). But then the stock drifted steadily lower to around 90 cents a share, stopping out of our model portfolio.
The stock recently snapped back to life and surged to about $1.50, apparently on exactly the kind of news flow we were expecting. This suggests more upside -- because it’s easy to map out similar catalysts this year. Besides, the potential for this company’s main compound in fighting many common viruses and cancers is huge.
Peregrine’s a novel compound seems to work like this. Essentially, when cells in our bodies get infected or altered by viruses and cancers, they change in the following way. As cells get stressed by these ailments, they get confused about some of their maintenance tasks. One result is that phospholipids normally found on the inside of cell membranes wind up on the outside.
This has two key implications. When viruses leave the cells they’ve infected, bits of the membranes from those cells envelope those virus particles. The exposed phospholipids on those membranes serve as targets for Tarvacin, Peregrine’s lead compound.
It’s similar with cancers. Stressed by cancer, the cells in blood vessels feeding cancer cells also get confused about their maintenance tasks. So the internal phospholipids end up on the outside of the cells. Bingo, another target for Tarvacin.
Tarvacin works essentially by attaching to problem cells and suppressing the signals from them that throw off our immune system. This way, our immune system can key in on the problem cells and destroy them. “Tarvacin reprograms the body’s own natural defenses to recognize and fight disease,” says Peregrine chief executive Steven King.
Tarvacin could work against a broad range of viruses, including the ones that cause influenza and Hepatitis B and C, herpes, West Nile, Dengue, HIV, SARS, avian flu and many of the potential bio-terror “hemorrhagic” viruses, like Ebola. Early studies in animals also show that Tarvacin acts as a kind of vaccine against further infections of the virus it was originally used to treat.
Tarvacin may also work against several kinds of cancer, so the potential is huge here, too. Blockbuster anti-cancer therapies like Avastin and Rituxan from Genentech (DNA) produce billions of dollars a year in revenue, and Tarvacin could be in this league.
Peregrine also has a compound it is testing for brain cancer, called Cotara. It seems to work by gathering in dead cells inside tumors and serving as a kind of magnet and anchor for radiation treatments that fix to the Cotara, destroying tumors from the inside out.
Peregrine jumped to $1.50 per share from about 90 cents in early January, apparently on news that:
For the rest of the year, several clinical milestones may draw further interest in this company. They include:
This is a long-term buy and hold that requires patience because all of these therapies are still far from commercialization. But the potential is big, so it makes sense to tuck away some of this stock in your portfolio.
Fossil
Teen retailer Fossil is still not doing press interviews, so it’s harder to get a grip on out what might turn it around. Normally that kind of reticence is a big red flag.
But the insider whose multi-million dollar purchases originally put us in this stock (click here) is buying huge amounts in the recent pull back. The buying is so big I’ll reload this position, too, in a kind of blind faith that managers will get this retailer back on track.
Why have this kind of blind faith in investing? Because typically, management teams who once figured out how to design hot retail products for teens can figure out how to do it again after a cold spell. Just look at the ups and downs of retailers like Abercrombie & Fitch (ANF) and American Eagle Outfitters (AEOS) over the years.
The recent buying came when chief executive Kosta Kartsotis stepped up and purchased $2.4 million worth of the stock in the $17.60 to $18.30 range after the shares dropped about 25% following a February 2 earnings warning.
The bottom line: Biotech companies and teen retailers are notoriously risky. Even when insiders buy huge amounts, it’s no guarantee the stocks will go up. But Peregrine has products that may be in the same league as the ones that rewarded Genentech shareholders nicely and the Fossil chief executive is plowing so much money into his stock at these levels, both are worth a shot as long-term plays.
Disclaimer
At the time of publication, Michael Brush owned shares of Peregrine Pharmaceuticals. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
It’s simply too easy to trick yourself into staying with a losing position that chips away at your balance daily – as you cling to hope.
That’s why, as a rule, we dump positions in the Insiders Corner portfolio whenever they decline 25%. No questions asked. So it hardly makes sense to circle back now and reopen positions that have stopped out.
But I am going to do it anyway with two stocks that tanked in the past few months and stopped out: Peregrine Pharmaceuticals (PPHM) and Fossil (FOSL), a retailer.
Peregrine Pharmaceuticals
We suggested Peregrine last summer at around $1.25 (click here). But then the stock drifted steadily lower to around 90 cents a share, stopping out of our model portfolio.
The stock recently snapped back to life and surged to about $1.50, apparently on exactly the kind of news flow we were expecting. This suggests more upside -- because it’s easy to map out similar catalysts this year. Besides, the potential for this company’s main compound in fighting many common viruses and cancers is huge.
Peregrine’s a novel compound seems to work like this. Essentially, when cells in our bodies get infected or altered by viruses and cancers, they change in the following way. As cells get stressed by these ailments, they get confused about some of their maintenance tasks. One result is that phospholipids normally found on the inside of cell membranes wind up on the outside.
This has two key implications. When viruses leave the cells they’ve infected, bits of the membranes from those cells envelope those virus particles. The exposed phospholipids on those membranes serve as targets for Tarvacin, Peregrine’s lead compound.
It’s similar with cancers. Stressed by cancer, the cells in blood vessels feeding cancer cells also get confused about their maintenance tasks. So the internal phospholipids end up on the outside of the cells. Bingo, another target for Tarvacin.
Tarvacin works essentially by attaching to problem cells and suppressing the signals from them that throw off our immune system. This way, our immune system can key in on the problem cells and destroy them. “Tarvacin reprograms the body’s own natural defenses to recognize and fight disease,” says Peregrine chief executive Steven King.
Tarvacin could work against a broad range of viruses, including the ones that cause influenza and Hepatitis B and C, herpes, West Nile, Dengue, HIV, SARS, avian flu and many of the potential bio-terror “hemorrhagic” viruses, like Ebola. Early studies in animals also show that Tarvacin acts as a kind of vaccine against further infections of the virus it was originally used to treat.
Tarvacin may also work against several kinds of cancer, so the potential is huge here, too. Blockbuster anti-cancer therapies like Avastin and Rituxan from Genentech (DNA) produce billions of dollars a year in revenue, and Tarvacin could be in this league.
Peregrine also has a compound it is testing for brain cancer, called Cotara. It seems to work by gathering in dead cells inside tumors and serving as a kind of magnet and anchor for radiation treatments that fix to the Cotara, destroying tumors from the inside out.
Peregrine jumped to $1.50 per share from about 90 cents in early January, apparently on news that:
* Tarvacin controlled the spread of pancreatic cancer in mice
* Peregrine enrolled patients months ahead of schedule in a study on how Tarvacin works against Hepatitis C
* the Defense Department announced a grant to support research on how well Tarvacin works against prostate cancer.
For the rest of the year, several clinical milestones may draw further interest in this company. They include:
* advances in its study on how well Tarvacin works against Hepatitis C
* completion of enrollment in studies on how well Tarvacin and Cotara work against cancer
* an expansion in the list of viruses that Tarvacin may work against
This is a long-term buy and hold that requires patience because all of these therapies are still far from commercialization. But the potential is big, so it makes sense to tuck away some of this stock in your portfolio.
Fossil
Teen retailer Fossil is still not doing press interviews, so it’s harder to get a grip on out what might turn it around. Normally that kind of reticence is a big red flag.
But the insider whose multi-million dollar purchases originally put us in this stock (click here) is buying huge amounts in the recent pull back. The buying is so big I’ll reload this position, too, in a kind of blind faith that managers will get this retailer back on track.
Why have this kind of blind faith in investing? Because typically, management teams who once figured out how to design hot retail products for teens can figure out how to do it again after a cold spell. Just look at the ups and downs of retailers like Abercrombie & Fitch (ANF) and American Eagle Outfitters (AEOS) over the years.
The recent buying came when chief executive Kosta Kartsotis stepped up and purchased $2.4 million worth of the stock in the $17.60 to $18.30 range after the shares dropped about 25% following a February 2 earnings warning.
The bottom line: Biotech companies and teen retailers are notoriously risky. Even when insiders buy huge amounts, it’s no guarantee the stocks will go up. But Peregrine has products that may be in the same league as the ones that rewarded Genentech shareholders nicely and the Fossil chief executive is plowing so much money into his stock at these levels, both are worth a shot as long-term plays.
Disclaimer
At the time of publication, Michael Brush owned shares of Peregrine Pharmaceuticals. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
Thursday, February 09, 2006
Snipping Genes to Cure Diseases
When U.S. President George Bush asked Congress to write laws that would ban “human-animal” hybrids last week in his State of the Union speech, it was a chilling reminder of the more bizarre implications of the genetic research going on around us.
So it’s comforting to remember that the miracles of genetic modification are also being tapped to protect human life and treat diseases.
A good example of these efforts is a Cambridge, Mass.-based company called Alnylam Pharmaceuticals (ALNY), where a director recently bought a big slug of stock, worth $1.3 million.
Running interference
Alnylam – named after a star in the constellation Orion – works in an area of science called “RNA interference.”
You may remember from biology classes that RNA, or ribonucleic acid, is a chemical that plays a role in the creation of proteins inside cells. Since most ailments can be traced back to the production of proteins, knowing how to stop RNA from making proteins means you have the keys to preventing all kinds of diseases.
This technique is called RNA interference, or RNAi for short, and it’s the main focus at Alnylam. “What we can do with our RNAi technology is stop those diseased proteins from being made in the first place,” says Alnylam chief executive John Maraganore.
RNAi works by slicing certain genes in our bodies, to disable RNA from producing specific proteins. It can also be used to attack viruses by disabling the genes inside of them that help the viruses reproduce.
If RNAi therapies ever see the light of day, patients will likely take them via regular injections, or inhalers.
Embarrassment of riches
Since proteins are at the root of most diseases and even problems like chronic pain, the potential here is huge. “There could be a whole new class of drugs based on RNAi,” says Maraganore. “We have an embarrassment of riches in the different diseases we can tackle.”
Here’s a brief look at some of the main ones Alnylam is working on first.
* Bird Flu
No one knows whether the H5N1 avian flu virus will ever make the jump to humans in a way that causes widespread problems (http://moneycentral.msn.com/content/P132582.asp). But it might. That would be devastating for us. But it could light a fire under Alnylam stock. That’s because the company believes its RNAi can neutralize the bird flu virus. Alnylam hopes to file an investigational new drug (IND) application with the Food and Drug Administration as early as the second half of this year in this area.
* Respiratory Syncytial Virus (RSV)
RSV is the leading cause of lower respiratory infections in infants. There are millions of cases in the US each year. Alnylam recently started enrolling patients for Phase I trials of a potential RSV therapy, to test for safety and dosage levels. It could release results in the first half of this year. The therapy could work by delivering a drug to the lung to neutralize a gene in the virus, preventing it from reproducing.
* Neurological diseases
Since ailments like Parkinson’s disease, Alzheimer's disease and cystic fibrosis can all be traced back to the production of certain kinds of proteins inside cells, RNAi might work against these problems, too. Alnylam is also in the early stages of trying to apply the technology to help regenerate nerves damaged in spinal cord injuries or stop certain kinds of pain.
Success factors
So many biotech companies sound so promising when you talk with the scientists, it’s hard to single a few out to invest in. I think Alnylam makes the cut for three reasons.
First, Alnylam has three key partnerships that suggest big drug companies believe in their tech. The partnerships are with Merck (MRK), Medtronic (MDT), and Novartis AG (NVS). These alliances have brought in about $100 million for Alnylam. Novartis owns just under 20% of the stock.
Next, Alnylam has some of the key scientists in the space on its team. They include: Thomas Tuschl who is the head of the Laboratory of RNA Molecular Biology at Rockefeller University, and Phillip Sharp who is the director of the McGovern Institute for Brain Research at the Massachusetts Institute of Technology. The company may ultimately lay claim to much of the intellectual property and patent rights behind RNAi.
Third, Paul Schimmel, a director, bought $1.3 million worth of the stock at the end of January. Insiders are often wrong in biotech, but that’s a significant bet.
The bottom line: Many biotech companies with a lot promise flame out. And this is a company that lost 51 cents a share in its last reported quarter. In short, it has a long way to go to profitability. But it’s got the stamp of approval of some major pharma companies. And several catalysts this year could move the stock. They include: the completion of Phase I studies on the RSV drug and the launch of Phase II trials here; the release of data from primate research on other therapies; and more funding for bird flu work and possible regulatory advances here. If you buy, just remember that early stage biotech companies are most suitable for investors with a long-term view.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
So it’s comforting to remember that the miracles of genetic modification are also being tapped to protect human life and treat diseases.
A good example of these efforts is a Cambridge, Mass.-based company called Alnylam Pharmaceuticals (ALNY), where a director recently bought a big slug of stock, worth $1.3 million.
Running interference
Alnylam – named after a star in the constellation Orion – works in an area of science called “RNA interference.”
You may remember from biology classes that RNA, or ribonucleic acid, is a chemical that plays a role in the creation of proteins inside cells. Since most ailments can be traced back to the production of proteins, knowing how to stop RNA from making proteins means you have the keys to preventing all kinds of diseases.
This technique is called RNA interference, or RNAi for short, and it’s the main focus at Alnylam. “What we can do with our RNAi technology is stop those diseased proteins from being made in the first place,” says Alnylam chief executive John Maraganore.
RNAi works by slicing certain genes in our bodies, to disable RNA from producing specific proteins. It can also be used to attack viruses by disabling the genes inside of them that help the viruses reproduce.
If RNAi therapies ever see the light of day, patients will likely take them via regular injections, or inhalers.
Embarrassment of riches
Since proteins are at the root of most diseases and even problems like chronic pain, the potential here is huge. “There could be a whole new class of drugs based on RNAi,” says Maraganore. “We have an embarrassment of riches in the different diseases we can tackle.”
Here’s a brief look at some of the main ones Alnylam is working on first.
* Bird Flu
No one knows whether the H5N1 avian flu virus will ever make the jump to humans in a way that causes widespread problems (http://moneycentral.msn.com/content/P132582.asp). But it might. That would be devastating for us. But it could light a fire under Alnylam stock. That’s because the company believes its RNAi can neutralize the bird flu virus. Alnylam hopes to file an investigational new drug (IND) application with the Food and Drug Administration as early as the second half of this year in this area.
* Respiratory Syncytial Virus (RSV)
RSV is the leading cause of lower respiratory infections in infants. There are millions of cases in the US each year. Alnylam recently started enrolling patients for Phase I trials of a potential RSV therapy, to test for safety and dosage levels. It could release results in the first half of this year. The therapy could work by delivering a drug to the lung to neutralize a gene in the virus, preventing it from reproducing.
* Neurological diseases
Since ailments like Parkinson’s disease, Alzheimer's disease and cystic fibrosis can all be traced back to the production of certain kinds of proteins inside cells, RNAi might work against these problems, too. Alnylam is also in the early stages of trying to apply the technology to help regenerate nerves damaged in spinal cord injuries or stop certain kinds of pain.
Success factors
So many biotech companies sound so promising when you talk with the scientists, it’s hard to single a few out to invest in. I think Alnylam makes the cut for three reasons.
First, Alnylam has three key partnerships that suggest big drug companies believe in their tech. The partnerships are with Merck (MRK), Medtronic (MDT), and Novartis AG (NVS). These alliances have brought in about $100 million for Alnylam. Novartis owns just under 20% of the stock.
Next, Alnylam has some of the key scientists in the space on its team. They include: Thomas Tuschl who is the head of the Laboratory of RNA Molecular Biology at Rockefeller University, and Phillip Sharp who is the director of the McGovern Institute for Brain Research at the Massachusetts Institute of Technology. The company may ultimately lay claim to much of the intellectual property and patent rights behind RNAi.
Third, Paul Schimmel, a director, bought $1.3 million worth of the stock at the end of January. Insiders are often wrong in biotech, but that’s a significant bet.
The bottom line: Many biotech companies with a lot promise flame out. And this is a company that lost 51 cents a share in its last reported quarter. In short, it has a long way to go to profitability. But it’s got the stamp of approval of some major pharma companies. And several catalysts this year could move the stock. They include: the completion of Phase I studies on the RSV drug and the launch of Phase II trials here; the release of data from primate research on other therapies; and more funding for bird flu work and possible regulatory advances here. If you buy, just remember that early stage biotech companies are most suitable for investors with a long-term view.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
Thursday, February 02, 2006
Get a Piece of Every Transaction with This Fast-Growing Credit Card Processor
It’s every dreamer’s get-rich-slow scheme. Figure out a way to take a small piece of lots of transactions that happen daily. Then sit back on the beach and let the money roll in.
I’m not sure how much time CAM Commerce Solutions (CADA) chief executive Geoffrey Knapp spends on the beach. But he seems to have figured out the first half of the equation.
His company spent years after starting up in the 1980s selling payment processing systems to retailers. That end of the business has been hit or miss lately.
But another side of the business is hot. It’s a software system retailers can incorporate into their payment systems that helps them in two ways. First, it allows them to get rid of that separate box you use to swipe your credit card. Instead, your card gets read by the store’s register.
Second, there’s now only one transaction – the register both reads your card and rings up your purchase in one shot. This means at the end of the day retailers don’t have to audit records of sales through two systems to be sure they all match up.
“With ours it is all one system,” says Knapp. “You eliminate all that extra equipment and all the auditing each day.” CAM Commerce takes a small piece of each transaction, sharing it sometimes with other vendors of payment systems if they were the ones who installed systems using CAM Commerce’s software.
Snapping it up
This might be a little more than you care to know about retail payment systems. But retailers themselves are snapping up X-Charge, as the system is called. In the September-ending quarter, X-Charge sales grew 78%.
CAM Commerce has other lines of business – like complete payment processing systems – so overall revenue isn’t moving up that fast. But the good news is that margins are higher on the X-Charge revenue, so as it grows, earnings move up a lot.
How much?
B. Riley & Co. analyst Justin Cable doesn’t cover the company. But he follows the sector so he has a model for CAM Commerce. He’s looking for overall revenue growth of 9.7% this year and 13.4% next year.
But because revenue should grow faster than costs, earnings per share could grow 75% this year and 57% next year. That means pro forma earnings per share could be 77 cents this year and $1.21 next year, compared to 44 cents last year. The company also has a forward annual dividend of 56 cents a share, for a dividend yield of 2.4%.
Despite this kind of prospective growth, CAM Commerce looks moderately cheap. If you strip out the company’s $5.47 per share in cash, the company trades for about 2.7 times sales, at $23.50 per share. Sage, a big UK software company, recently paid 5.1 times sales for Nashville, TN-based payment processor Verus Financial Management.
Insiders have purchased $2.6 million worth of stock since last April, and this is only a $65 million market cap company. So that’s huge.
About $2.1 million came from a beneficial owner (someone who owns more than 10% of the stock) who has close contacts with top management. Knapp has purchased $442,000 worth and now owns over 12% of the shares.
The bottom line: Insiders admittedly bought the stock much lower. Knapp’s highest purchase was at $17.50 and the beneficial owner purchased most of his stock under $15, but his highest purchase was $22.80. In short, the stock has been strong of late – probably in anticipation of good earnings news on Feb. 14 when CAM Commerce reports – so we are a little late to the story. But there is still probably significant upside ahead, and I’d expect the stock to be strong on quarterly earnings news. So I would buy right now.
I’m not sure how much time CAM Commerce Solutions (CADA) chief executive Geoffrey Knapp spends on the beach. But he seems to have figured out the first half of the equation.
His company spent years after starting up in the 1980s selling payment processing systems to retailers. That end of the business has been hit or miss lately.
But another side of the business is hot. It’s a software system retailers can incorporate into their payment systems that helps them in two ways. First, it allows them to get rid of that separate box you use to swipe your credit card. Instead, your card gets read by the store’s register.
Second, there’s now only one transaction – the register both reads your card and rings up your purchase in one shot. This means at the end of the day retailers don’t have to audit records of sales through two systems to be sure they all match up.
“With ours it is all one system,” says Knapp. “You eliminate all that extra equipment and all the auditing each day.” CAM Commerce takes a small piece of each transaction, sharing it sometimes with other vendors of payment systems if they were the ones who installed systems using CAM Commerce’s software.
Snapping it up
This might be a little more than you care to know about retail payment systems. But retailers themselves are snapping up X-Charge, as the system is called. In the September-ending quarter, X-Charge sales grew 78%.
CAM Commerce has other lines of business – like complete payment processing systems – so overall revenue isn’t moving up that fast. But the good news is that margins are higher on the X-Charge revenue, so as it grows, earnings move up a lot.
How much?
B. Riley & Co. analyst Justin Cable doesn’t cover the company. But he follows the sector so he has a model for CAM Commerce. He’s looking for overall revenue growth of 9.7% this year and 13.4% next year.
But because revenue should grow faster than costs, earnings per share could grow 75% this year and 57% next year. That means pro forma earnings per share could be 77 cents this year and $1.21 next year, compared to 44 cents last year. The company also has a forward annual dividend of 56 cents a share, for a dividend yield of 2.4%.
Despite this kind of prospective growth, CAM Commerce looks moderately cheap. If you strip out the company’s $5.47 per share in cash, the company trades for about 2.7 times sales, at $23.50 per share. Sage, a big UK software company, recently paid 5.1 times sales for Nashville, TN-based payment processor Verus Financial Management.
Insiders have purchased $2.6 million worth of stock since last April, and this is only a $65 million market cap company. So that’s huge.
About $2.1 million came from a beneficial owner (someone who owns more than 10% of the stock) who has close contacts with top management. Knapp has purchased $442,000 worth and now owns over 12% of the shares.
The bottom line: Insiders admittedly bought the stock much lower. Knapp’s highest purchase was at $17.50 and the beneficial owner purchased most of his stock under $15, but his highest purchase was $22.80. In short, the stock has been strong of late – probably in anticipation of good earnings news on Feb. 14 when CAM Commerce reports – so we are a little late to the story. But there is still probably significant upside ahead, and I’d expect the stock to be strong on quarterly earnings news. So I would buy right now.
Subscribe to:
Posts (Atom)
