Techprecision (TPCS, Financial) manufactures precision metal components at its 125K square foot facility in Massachusetts. The company has generated operating income of about $20 million in the last four years, yet it trades for just $15 million.
As a manufacturer of heavy-duty equipment, the company will experience highly cyclical revenue cycles. When capital spending is cut, as is the case during recessions, a company such as this one is likely to see negative profits for some time. This is what creates buying opportunities, since stock prices will often overreact to the downside. What's important to look for in such cases is a strong financial position, which allows a company to outlast downturns. Techprecision has $10 million of cash against just $6 million of debt, which should allow it to weather any revenue shortfalls.
Techprecision also has exposure to growth industries; that is helping it achieve profits even in this tough environment. Techprecision sells to customers in the nuclear, solar, wind and other alternative energy industries. As a result, revenues have rebounded somewhat, allowing the company to generate around $1.7 million in profit over the last three quarters.
Unfortunately, the company does not trade on an exchange, some of the risks of which are discussed here. However, the company appears interested in joining either the Nasdaq or AMEX, which could serve to boost its valuation should that occur. The company has asked shareholders to approve a reverse stock split split, so that its stock trades well above $1. Why is that important? The following statement from the company's proxy statement illustrates the company's motives:
"The Board believes that the Reverse Stock Split is an effective means of increasing the per share market price of our Common Stock in order to achieve the minimum per share stock price necessary to qualify for listing on well-recognized stock exchanges, such as the American Stock Exchange or the Nasdaq Capital Market. The Board will only effect the Reverse Stock Split in connection with an application to list our Common Stock on such stock exchanges. It will not effect the Reverse Stock Split for any other purpose."
There are some risks facing this company, however. First of all, it is heavily reliant on one customer for 60% of its revenue. If that customer were to lose market position, or realign its suppliers, it could seriously harm Techprecision. Thus, only investors who understand the persistence of Techprecision's market position should consider investing.
Furthermore, the company has a number of outstanding convertible pref shares that could dilute current shareholders considerably. While the company has only 14 million shares outstanding, it has 21 million diluted weighted average shares in its last quarter.
Techprecision appears cheap and could see a catalyst benefit were it to join a recognized exchange. However, its reliance on one major customer and the potential for some dilution could turn some potential investors off. Each investor must decide for himself if this company makes sense for his portfolio.
Disclosure: None
Saj Karsan
http://www.barelkarsan.com
As a manufacturer of heavy-duty equipment, the company will experience highly cyclical revenue cycles. When capital spending is cut, as is the case during recessions, a company such as this one is likely to see negative profits for some time. This is what creates buying opportunities, since stock prices will often overreact to the downside. What's important to look for in such cases is a strong financial position, which allows a company to outlast downturns. Techprecision has $10 million of cash against just $6 million of debt, which should allow it to weather any revenue shortfalls.
Techprecision also has exposure to growth industries; that is helping it achieve profits even in this tough environment. Techprecision sells to customers in the nuclear, solar, wind and other alternative energy industries. As a result, revenues have rebounded somewhat, allowing the company to generate around $1.7 million in profit over the last three quarters.
Unfortunately, the company does not trade on an exchange, some of the risks of which are discussed here. However, the company appears interested in joining either the Nasdaq or AMEX, which could serve to boost its valuation should that occur. The company has asked shareholders to approve a reverse stock split split, so that its stock trades well above $1. Why is that important? The following statement from the company's proxy statement illustrates the company's motives:
"The Board believes that the Reverse Stock Split is an effective means of increasing the per share market price of our Common Stock in order to achieve the minimum per share stock price necessary to qualify for listing on well-recognized stock exchanges, such as the American Stock Exchange or the Nasdaq Capital Market. The Board will only effect the Reverse Stock Split in connection with an application to list our Common Stock on such stock exchanges. It will not effect the Reverse Stock Split for any other purpose."
There are some risks facing this company, however. First of all, it is heavily reliant on one customer for 60% of its revenue. If that customer were to lose market position, or realign its suppliers, it could seriously harm Techprecision. Thus, only investors who understand the persistence of Techprecision's market position should consider investing.
Furthermore, the company has a number of outstanding convertible pref shares that could dilute current shareholders considerably. While the company has only 14 million shares outstanding, it has 21 million diluted weighted average shares in its last quarter.
Techprecision appears cheap and could see a catalyst benefit were it to join a recognized exchange. However, its reliance on one major customer and the potential for some dilution could turn some potential investors off. Each investor must decide for himself if this company makes sense for his portfolio.
Disclosure: None
Saj Karsan
http://www.barelkarsan.com
