Thoughts on PRCP

[Guest swf83]

I wanted to get the board's thoughts on PRCP. I am sure many, if not all, of you have never heard of this company. It averages only about 15,000 shares traded daily. However, what turned me on to the company is the balance sheet--quite possibly the "cleanest" I have seen in a long, long time. The stock closed at $3.63 today. However, the company has $2.69/share in cash/cash equivalents and has zero debt. It has already ridden out the toughest part of the auto cycle, in my opinion, and I believe that going forward the company can pick up serious marketshare in its industry as automakers continue to look for ways to cost cost and personnel.

 

Anyone have any thoughts on this one? I thought it might appeal to some of you on this board.

 

Thanks

[beerbaron]

The balance sheet is clean but the profit opportunity is low. Looking at their last 4 years, the best they did for net income was 3.24M. Which would give us at best, a PE of 10 if they could make profit like they did 4 years ago. That is not cheap for a company with no growth and with a complex product.

 

Also, management has retained all earnings and did not give any dividends. Why do they need 22M in cash, I rather see that money in my bank account. They did buyback a few years ago which I like but they also reversed the trend in 2008. For illiquid stocks it's usually better to give dividends since a buyback reduces liquidity even more.

 

The inventories kept raising in the last 4 years... which makes me think that we should deduce the CapEx in all the last 4 years. It most likely they will need to do a write down sooner or later. After all, it's not like their revenues have grown in proportion to their inventory.

 

I can't really understand what they sell and how they can benefit from the recovery. I'm an electrical engineer and I work in production and I'm not sure this is in my circle in competence. So unless you are in that specific area of the business you should not feel comfortable about it.

 

If I had to rate this investment out of 10 I would give it a 6.

 

BeerBaron

[Guest swf83]

"The inventories kept raising in the last 4 years... which makes me think that we should deduce the CapEx in all the last 4 years. It most likely they will need to do a write down sooner or later. After all, it's not like their revenues have grown in proportion to their inventory."

 

What "inventories" are you thinking of exactly?

 

 

Thanks for your thoughts, but I differ with your thinking in that I think there is a lot of growth ahead for this company-- and even a moderate return to growth will allow this company to be extremely profitable.

[Guest swf83]

Furthermore, from the previous earnings release:

 

"The Company continues to have no debt and shareholders' equity at June 30, 2009 was $55.7 million, or $6.28 per diluted share, ..."

 

Basically the stockholder's equity on a per share basis is double that of the stock price.

[beerbaron]

"The inventories kept raising in the last 4 years... which makes me think that we should deduce the CapEx in all the last 4 years. It most likely they will need to do a write down sooner or later. After all, it's not like their revenues have grown in proportion to their inventory."

 

What "inventories" are you thinking of exactly?

 

Inventories in 2006 were 6.43, 2007 they are  7.62, 2008 they are 8.29, 2009 they are 10.01. That is quite an increase for a company with no sales growth. With tech, the inventories tend to be obsolete very fast so I would discount the increase of inventories off their past earnings. They seem to have put the inventories in a mix of CapEx and Other investing Cash Flow.

 

It's just my two cents, you invest in whatever you want. Personnal investing is a game against yourself not against others.

 

Frederic Boucher

[Guest swf83]

Does anyone have any more thoughts to offer up on PRCP?