By Michael Brush
April 20, 2006
For years, pundits have wondered how the Internet and television will merge to form one home entertainment system in your living room. A tiny Fremont, Ca.-based company may have the answer – or at least a piece of it.
Pegasus Wireless (PGWC), whose top managers were behind the development of a wireless transmission system known as Wi-Fi, introduced a wireless connection device earlier this year that may do the trick. The device carries high-definition streaming video from your personal computer to your TV.
Known as the WiJET, this gadget is one of several wireless consumer electronics goodies Pegasus hopes to have in stores by Christmas. Others include a Wi-Fi based universal remote, and wireless stereo headphones. More cool wireless consumer electronics products are in the works. “We have a whole bunch of consumer devices that will be pretty neat,” says Pegasus Wireless president Jasper Knabb.
Will these products sell? After all, consumer electronics is a notoriously tough segment of retail -- where giants much larger than Pegasus duke it out through a combination of design breakthroughs and margin-crushing price concessions to the major retail chains.
Huge insider buying
Pegasus Wireless insiders sure seem to think they can pull it off. In the last seven months, insiders bought a whopping $14 million worth of stock. The buys include purchases in the $10 to $14 range -- or not far from where the stock recently changed hands.
Most of that buying has come from Knabb himself, a multimillionaire who sold his first business – a console game development company -- for $80 million when he was just 22.
Now in his late 30s, Knabb – along with other top managers at Pegasus – has one of the more unusual pay packages in corporate America. Knabb gets no salary. Instead, he received 1.2 million options with strike price of 32 cent a share, for his first two years of work.
Beyond that, he hopes to realize a big piece of his payoff through exposure to Pegasus stock – a major reason he has been buying.
Knabb is already ahead of the game. He bought $1 million dollars worth at $2, and $9.2 million worth at prices ranging from $7 to $9. The stock recently traded for $13.
It’s worth noting that many of these purchases weren’t your typical open market buys. Instead, they were linked to financing deals that helped fund acquisitions by Pegasus.
But we’ve seen many cases in the past year where insider buying linked to financing deals -- and initial public offerings -- served as an accurate bullish signal. Besides, Knabb says he is not done buying, despite the recent stock advance, because he believes so much growth lies ahead. “We are just getting started,” he says.
Other products
Besides devices that link computers to TVs, Pegasus makes several lines of wireless connection devices used to create outdoor wireless Internet hotspots and networks in the home and office. Other devices link computer networks in different buildings at schools or businesses. Pegasus products also connect computers to projectors for wireless PowerPoint slide shows.
Going against the grain
In the past several months, Pegasus has done a series of acquisitions that morphed it into a vertically-integrated business – the very kind of business model many companies have been running away from in the past few decades.
Pegasus has the intellectual property. But instead of outsourcing manufacturing, it purchased controlling stakes in plants in China and Taiwan. And to reach customers, Pegasus bought a controlling interest in AMAX Engineering based in Fremont, Ca. AMAX sells computer systems and networking devices. But Pegasus purchased the company for its customer base. “We picked up 160,000 accounts,” says Knabb.
A wild horse
In Greek mythology, Pegasus was a winged horse that was full of surprises. Once her head was cut off, and another horse sprang from her body. Pegasus was given as a gift, but promptly threw its new owner and rose to the heavens.
If you plan to own this stock, you should keep in mind that Pegasus, the company, lives up to its namesake. The stock more than doubled to trade above $15 in January from $6 in November. Then it pulled back to $8 this spring, and shot up over 35% to $13 this week – presumably on news the company would move to Nasdaq from the bulletin board.
Anyone who follows the insiders on Pegasus should be prepared for more volatility. After all, Pegasus now has a lot to deliver, to live up to its promise. It has a market cap of almost $1 billion. But it had sales of just $17 million in last quarter of 2005 – and most of that came from the AMAX Engineering purchase. That means the company has to expand a lot, to grow into an over-sized price to sales ratio of nearly 15.
Next, consumer electronics is a tough business where the huge retail chains squeeze every penny out of suppliers. The landscape is dominated by huge competitors. Success won’t come easy. Finally, ownership of manufacturing plants and distribution channels could leave Pegasus with stranded costs that hurt margins in a downturn.
The bottom line: The huge insider buying is a big lure with Pegasus – a strong enough signal to make the stock worth buying. Just watch your position size.
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, April 20, 2006
Wednesday, April 12, 2006
Can You See Me Now? A Small Play on a Big Wireless Upgrade
By Michael Brush
April 13, 2006
When you watch a movie that’s even just a few years old these days, one thing stands out: The cell phones are just too darn big.
Wireless providers have done a great job of miniaturizing the handsets. Now for their next trick: Over the next few years, they hope to send movies themselves through those cell phones. They want to pipe other “multimedia” services through handhelds as well -- like music and interactive games.
But none of this will work unless the wireless providers can get the bugs out of their networks so that those annoying signal drops have gone the way of oversized cell phones.
After, with so many other places to catch a movie or sitcom, who is going to put up with disruptions in the latest episode of "Desperate Housewives" on a cell phone when you can see the show without hiccups over the Internet or on TV?
That’s where LCC International (LCCI) comes in. For years, this tiny Mclean, VA -based company has been advising wireless providers around the globe on the best way to design networks – and helped them install and maintain them, as well.
Now under the leadership of Dean Douglas, who took the helm last October, the company hopes to focus more on the higher-margin consulting work – just as wireless providers face their next big challenge of installing broadband pipes to accommodate new multimedia services.
Douglas brings experience in wireless technology garnered while working at a Cisco (CSCO)-Motorola (MOT) joint venture called Invisix. He also worked with the IBM Global Services division of International Business Machines (IBM).
Can you see me now?
“As the carriers begin to move into multimedia applications, they will need to start thinking about reliability,” says Douglas. “Network reliability is critical.” Douglas believes LCC International can draw on its deep bench of radio frequency engineering expertise to help the wireless companies hit the right levels of reliability.
The company has already worked on projects with high-profile players that needed enough networks reliable to carry entertainment. LCC International helped XM Satellite Radio Holdings (XMSR) design and build its satellite network. It has also already done work with Nextel and Cingular Wireless work on developing advanced networks.
But will LCC International continue to win deals as wireless providers rush to install broadband pipes so they can offer multimedia apps? I can’t say for sure, but insiders seem to think so. And that is always a good start. Since December insiders have purchased $220,000 worth of LCC International stock for prices between $2.95 and $3.28. But the lion’s share of the buying occurred in the $3.18 to $3.28 range, not too far below recent levels of $3.70.
To be sure, the company is tiny -- with a market cap of just $67 million. On the bright side, this means the company is off the radar screen for lots of investors. So there is plenty of money on the sidelines to come into this stock if the company really does catch the wave of coming upgrades at the wireless providers. LCC International still looks cheap with a price to sales ratio of just .46.
Meanwhile, the company has a decent amount of cash to tide it over while it changes direction. It recently had around $14 million in cash or 57 cents a share. The company also has a decent backlog of at least $79 million worth of business.
Big-picture trends
Here is a summary of some of the of the main sector trends that may drive growth for this company:
Wireless providers are looking to offer multimedia services like mobile TV and music, interactive games, voice over IP (VoIP), and multimedia messaging -- which allows wireless users to swap messages that combine text, image, sound and video. But to do so, they have to turn to technologies like 3G and WiMAX to get more high-capacity bandwidth. “The move to broadband and 3G will be a big shift for carriers and it will be a big thrust for our business,” says Douglas.
Wireless providers have consolidated in recent years, with Cingular Wireless and AT&T Wireless Services hooking up, as well as Sprint and Nextel. They are stretched by the demands that come from merging their businesses. So they are looking outside for help, says Douglas. “Consolidation presents huge opportunities because the carriers are constrained for resources,” says Douglas. “Radio frequency resources are constrained to begin with.”
Gone are the days when wireless providers bought spectrum at any price. These days they have to be smarter about what they pay. LCC International has tools that can help them figure out in advance what it will cost to build out networks – a process known as “dimensioning,” in the business. “We are the only entity that has those dimensioning tools,” says Douglas.
The bottom line: This company bills itself as having the know-how and experience to help wireless providers reach the next level of service offerings – and the insider buying backs it up. Meanwhile the stock looks cheap, and the company has enough cash to tide it over while it reaches to make the transition. I would buy right here.
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.
April 13, 2006
When you watch a movie that’s even just a few years old these days, one thing stands out: The cell phones are just too darn big.
Wireless providers have done a great job of miniaturizing the handsets. Now for their next trick: Over the next few years, they hope to send movies themselves through those cell phones. They want to pipe other “multimedia” services through handhelds as well -- like music and interactive games.
But none of this will work unless the wireless providers can get the bugs out of their networks so that those annoying signal drops have gone the way of oversized cell phones.
After, with so many other places to catch a movie or sitcom, who is going to put up with disruptions in the latest episode of "Desperate Housewives" on a cell phone when you can see the show without hiccups over the Internet or on TV?
That’s where LCC International (LCCI) comes in. For years, this tiny Mclean, VA -based company has been advising wireless providers around the globe on the best way to design networks – and helped them install and maintain them, as well.
Now under the leadership of Dean Douglas, who took the helm last October, the company hopes to focus more on the higher-margin consulting work – just as wireless providers face their next big challenge of installing broadband pipes to accommodate new multimedia services.
Douglas brings experience in wireless technology garnered while working at a Cisco (CSCO)-Motorola (MOT) joint venture called Invisix. He also worked with the IBM Global Services division of International Business Machines (IBM).
Can you see me now?
“As the carriers begin to move into multimedia applications, they will need to start thinking about reliability,” says Douglas. “Network reliability is critical.” Douglas believes LCC International can draw on its deep bench of radio frequency engineering expertise to help the wireless companies hit the right levels of reliability.
The company has already worked on projects with high-profile players that needed enough networks reliable to carry entertainment. LCC International helped XM Satellite Radio Holdings (XMSR) design and build its satellite network. It has also already done work with Nextel and Cingular Wireless work on developing advanced networks.
But will LCC International continue to win deals as wireless providers rush to install broadband pipes so they can offer multimedia apps? I can’t say for sure, but insiders seem to think so. And that is always a good start. Since December insiders have purchased $220,000 worth of LCC International stock for prices between $2.95 and $3.28. But the lion’s share of the buying occurred in the $3.18 to $3.28 range, not too far below recent levels of $3.70.
To be sure, the company is tiny -- with a market cap of just $67 million. On the bright side, this means the company is off the radar screen for lots of investors. So there is plenty of money on the sidelines to come into this stock if the company really does catch the wave of coming upgrades at the wireless providers. LCC International still looks cheap with a price to sales ratio of just .46.
Meanwhile, the company has a decent amount of cash to tide it over while it changes direction. It recently had around $14 million in cash or 57 cents a share. The company also has a decent backlog of at least $79 million worth of business.
Big-picture trends
Here is a summary of some of the of the main sector trends that may drive growth for this company:
Wireless providers are looking to offer multimedia services like mobile TV and music, interactive games, voice over IP (VoIP), and multimedia messaging -- which allows wireless users to swap messages that combine text, image, sound and video. But to do so, they have to turn to technologies like 3G and WiMAX to get more high-capacity bandwidth. “The move to broadband and 3G will be a big shift for carriers and it will be a big thrust for our business,” says Douglas.
Wireless providers have consolidated in recent years, with Cingular Wireless and AT&T Wireless Services hooking up, as well as Sprint and Nextel. They are stretched by the demands that come from merging their businesses. So they are looking outside for help, says Douglas. “Consolidation presents huge opportunities because the carriers are constrained for resources,” says Douglas. “Radio frequency resources are constrained to begin with.”
Gone are the days when wireless providers bought spectrum at any price. These days they have to be smarter about what they pay. LCC International has tools that can help them figure out in advance what it will cost to build out networks – a process known as “dimensioning,” in the business. “We are the only entity that has those dimensioning tools,” says Douglas.
The bottom line: This company bills itself as having the know-how and experience to help wireless providers reach the next level of service offerings – and the insider buying backs it up. Meanwhile the stock looks cheap, and the company has enough cash to tide it over while it reaches to make the transition. I would buy right here.
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, April 06, 2006
How to Trust but Verify in the Digital Age
By Michael Brush
April 06, 2006
One of the safest ways to go bottom fishing for troubled companies that could spring back is to look for businesses with a treasure trove of cash.
This cash – assuming there’s enough – can serve as a cushion to protect you from a sharp move down in the stock. Meanwhile, it gives the company some breathing room while it digs its way out of its hole.
That’s exactly what you find with a little Berkeley Heights, NJ-based business called Authentidate Holding (ADAT).
First, the cash: Authentidate had $52 million at the end of last year, which works out to $1.50 per share. The stock recently traded for $3.50.
Now for the potential rebound. Authentidate has three lines of business, but its new chief executive is counting on one to take off and make this company soar again. The ticket out: Software-based products that help companies confirm that important business documents were sent and received – and not altered if the details of a transaction have to be verified later.
“If you have a business process, especially one that spans across organizations, then very often one organization needs to prove to itself or someone else like a regulator that it has processed a certain type of content in a specific way,” says chief executive Surendra Pai.
That’s where Authentidate comes in.
Home medical equipment
The company achieved a coup of sorts last December when it signed up American HomePatient – a large provider of home medical equipment like oxygen tanks and wheel chairs. American HomePatient is using Authentidate’s software to streamline the paper flow with doctors and Medicare or insurance companies. The system also creates an “audit trail” in case there is trouble down the road.
Authentidate has a version of this product ready for companies that want to do everything electronically. But since doctors are still hopelessly stuck in the stone-age world of paper-based transactions, Authentidate had to tweak its offering to accommodate these digital laggards. In the system used by American HomePatient, doctors can still manage their side of the paperwork via fax – as they are accustomed.
But fully electronic versions of Authentidate’s offering will probably make it to the market, too. Pai thinks this foray into the medical equipment field is just the beginning. He also sees applications for document verification in law. Authentidate is testing products in law firms in South Carolina. The service could also be applied in other professions like finance, or even to verify electronic voting.
Only about 25% of Authentidate’s revenue comes from this more promising line of business. But that could change if recent growth trends are any indication. Revenue in this segment grew 13% in the last quarter of 2005 compared to the prior quarter. It came in at $1.25 million. The company also handles the technology behind the U.S. Postal Service’s electronic postmark offering. And it has a systems integration and a document imaging line.
Some clouds
To be sure, Authentidate has several clouds over it. Authentidate saw its finance chief leave at the end of January – not a comforting sign for many investors. And revenue is in decline. That’s just part of the shift from lower margin lines to the more profitable authentication software sales, says Pai.
Not even that cash hoard is safe, as plenty of sharks are circling to try to sink their teeth into it. While the stock took a sickening plunge to $2 at the end of last year from $18 in early 2004, several law firms sued Authentidate. Some are claiming that the Authentidate’s secondary offering in early 2004 – the one that raked in all the dough – was only successful because the stock was artificially high due to “misleading” comments about the company’s prospects.
These kinds of suits often go nowhere, but they are a distraction in the meantime.
The bottom line: The good news is that three insiders – including the chief executive – stepped up and purchased a healthy $200,000 worth of the company’s stock at prices between $2.76 and $3.40 in March, according to Thomson Financial. That’s not much below where you can buy it now. Since the first quarter – to be reported in the coming weeks -- may show signs of the beginnings of a turnaround, I’d buy right here. Given the recent volatility in the stock, you can probably improve your entry point with the judicious use of limit orders.
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.
April 06, 2006
One of the safest ways to go bottom fishing for troubled companies that could spring back is to look for businesses with a treasure trove of cash.
This cash – assuming there’s enough – can serve as a cushion to protect you from a sharp move down in the stock. Meanwhile, it gives the company some breathing room while it digs its way out of its hole.
That’s exactly what you find with a little Berkeley Heights, NJ-based business called Authentidate Holding (ADAT).
First, the cash: Authentidate had $52 million at the end of last year, which works out to $1.50 per share. The stock recently traded for $3.50.
Now for the potential rebound. Authentidate has three lines of business, but its new chief executive is counting on one to take off and make this company soar again. The ticket out: Software-based products that help companies confirm that important business documents were sent and received – and not altered if the details of a transaction have to be verified later.
“If you have a business process, especially one that spans across organizations, then very often one organization needs to prove to itself or someone else like a regulator that it has processed a certain type of content in a specific way,” says chief executive Surendra Pai.
That’s where Authentidate comes in.
Home medical equipment
The company achieved a coup of sorts last December when it signed up American HomePatient – a large provider of home medical equipment like oxygen tanks and wheel chairs. American HomePatient is using Authentidate’s software to streamline the paper flow with doctors and Medicare or insurance companies. The system also creates an “audit trail” in case there is trouble down the road.
Authentidate has a version of this product ready for companies that want to do everything electronically. But since doctors are still hopelessly stuck in the stone-age world of paper-based transactions, Authentidate had to tweak its offering to accommodate these digital laggards. In the system used by American HomePatient, doctors can still manage their side of the paperwork via fax – as they are accustomed.
But fully electronic versions of Authentidate’s offering will probably make it to the market, too. Pai thinks this foray into the medical equipment field is just the beginning. He also sees applications for document verification in law. Authentidate is testing products in law firms in South Carolina. The service could also be applied in other professions like finance, or even to verify electronic voting.
Only about 25% of Authentidate’s revenue comes from this more promising line of business. But that could change if recent growth trends are any indication. Revenue in this segment grew 13% in the last quarter of 2005 compared to the prior quarter. It came in at $1.25 million. The company also handles the technology behind the U.S. Postal Service’s electronic postmark offering. And it has a systems integration and a document imaging line.
Some clouds
To be sure, Authentidate has several clouds over it. Authentidate saw its finance chief leave at the end of January – not a comforting sign for many investors. And revenue is in decline. That’s just part of the shift from lower margin lines to the more profitable authentication software sales, says Pai.
Not even that cash hoard is safe, as plenty of sharks are circling to try to sink their teeth into it. While the stock took a sickening plunge to $2 at the end of last year from $18 in early 2004, several law firms sued Authentidate. Some are claiming that the Authentidate’s secondary offering in early 2004 – the one that raked in all the dough – was only successful because the stock was artificially high due to “misleading” comments about the company’s prospects.
These kinds of suits often go nowhere, but they are a distraction in the meantime.
The bottom line: The good news is that three insiders – including the chief executive – stepped up and purchased a healthy $200,000 worth of the company’s stock at prices between $2.76 and $3.40 in March, according to Thomson Financial. That’s not much below where you can buy it now. Since the first quarter – to be reported in the coming weeks -- may show signs of the beginnings of a turnaround, I’d buy right here. Given the recent volatility in the stock, you can probably improve your entry point with the judicious use of limit orders.
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.
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