Thursday, August 30, 2012
APP American Apparel - news out
APP had a wonderful chart going into today. This morning the company reported a 19% increase in online sales. I have yet to read the full article, so I don't know all the details, just saw the headline. However, the stocks is up about 7% in premarket trading. Could be a big mover today.
Wednesday, August 29, 2012
KSW - a small HVAC firm in New York
KSW, Inc. has been a long time favorite of mine in the small cap area. I first discovered this unique company many years ago when it was still on the bulletin board exchange. What I like about the company is the consistently strong balance sheet, an often large back log covering three or more quarters worth of revenue, and the company consistently turns a profit.
KSW, for a number of years, has had a good clean balance sheet, with plenty of liquidity and hardly any debts. Currently the one long term liability is a mortgage for an amount but a fraction of cash on hand. The current ratio (current assets to current liabilities) is just under 2, meaning the company has plenty of liquidity to cover business needs. Cash and marketable securities add up to $2.68 per share. The company trades at less than 1.5 times cash. The strong balance sheet has been consistent over the time frame I have followed the company.
The second highlight of KSW is a consistent disclosure of the backlog outstanding in each quarterly report. The company has done an excellent job of keeping investors updated on current backlog and describing the work done under the contracts as they receive them. On the company website is a list of current projects. This leaves investors with less uncertainty. From the most recent quarterly release "The Company's backlog as of June 30, 2012 was approximately $74,600,000, which does not include a recently awarded contract for a 33-story residential building located on Manhattan's West Side, valued at approximately $10,000,000." This compares to second quarter revenue around $25 million, clearly illustrating the company has a reasonable amount of bookings to perform work on over the next few quarters.
Lastly, the company has done a great job of consistently turning a profit, even in quarters with lackluster sales. This is a result of low overhead and almost all of their income statement being wrapped up in the projects themselves. Here are the quarterly results for the last six quarters:
As you can see, the company does not exactly have consistent year over year earnings and sales growth, but even when sales declined year over year the company still turned a profit. This has been a theme for the vast majority of the time I have followed the company. After the financial problems of the US in 2008-2009 the company did struggle to turn profit as money for large HVAC contracts dried up. However, the rest of my experience watching KSW leads me to believe absent extenuating circumstances, the company will turn a profit.
Currently KSW trades at a PE around 12. Not too high, not real low. The company has a very strong balance sheet and a well document and high backlog number. From a fundamentals perspective, the company looks pretty cheap. From a technical perspective, things could get interesting if it goes above $4.
I currently own no shares but if I had free cash I would consider buying some.
Happy investing all!
KSW, for a number of years, has had a good clean balance sheet, with plenty of liquidity and hardly any debts. Currently the one long term liability is a mortgage for an amount but a fraction of cash on hand. The current ratio (current assets to current liabilities) is just under 2, meaning the company has plenty of liquidity to cover business needs. Cash and marketable securities add up to $2.68 per share. The company trades at less than 1.5 times cash. The strong balance sheet has been consistent over the time frame I have followed the company.
The second highlight of KSW is a consistent disclosure of the backlog outstanding in each quarterly report. The company has done an excellent job of keeping investors updated on current backlog and describing the work done under the contracts as they receive them. On the company website is a list of current projects. This leaves investors with less uncertainty. From the most recent quarterly release "The Company's backlog as of June 30, 2012 was approximately $74,600,000, which does not include a recently awarded contract for a 33-story residential building located on Manhattan's West Side, valued at approximately $10,000,000." This compares to second quarter revenue around $25 million, clearly illustrating the company has a reasonable amount of bookings to perform work on over the next few quarters.
Lastly, the company has done a great job of consistently turning a profit, even in quarters with lackluster sales. This is a result of low overhead and almost all of their income statement being wrapped up in the projects themselves. Here are the quarterly results for the last six quarters:
| Year over year revenue comparisons in millions | |||
| current | previous | ||
| 1st quarter 2011 | $ 16.55 | $ 13.46 | 23% |
| 2nd quarter 2011 | $ 17.43 | $ 24.44 | -29% |
| 3rd quarter 2011 | $ 16.17 | $ 21.12 | -23% |
| 4th quarter 2011 | $ 19.13 | $ 17.28 | 11% |
| 1st quarter 2012 | $ 21.46 | $ 16.55 | 30% |
| 2nd quarter 2012 | $ 25.34 | $ 17.43 | 45% |
| Year over year EPS comparisons | |||
| current | previous | ||
| 1st quarter 2011 | $ 0.05 | $ 0.01 | 400% |
| 2nd quarter 2011 | $ 0.07 | $ 0.12 | -42% |
| 3rd quarter 2011 | $ 0.03 | $ 0.11 | -73% |
| 4th quarter 2011 | $ 0.09 | $ 0.07 | 29% |
| 1st quarter 2012 | $ 0.11 | $ 0.05 | 120% |
| 2nd quarter 2012 | $ 0.09 | $ 0.07 | 29% |
As you can see, the company does not exactly have consistent year over year earnings and sales growth, but even when sales declined year over year the company still turned a profit. This has been a theme for the vast majority of the time I have followed the company. After the financial problems of the US in 2008-2009 the company did struggle to turn profit as money for large HVAC contracts dried up. However, the rest of my experience watching KSW leads me to believe absent extenuating circumstances, the company will turn a profit.
Currently KSW trades at a PE around 12. Not too high, not real low. The company has a very strong balance sheet and a well document and high backlog number. From a fundamentals perspective, the company looks pretty cheap. From a technical perspective, things could get interesting if it goes above $4.
I currently own no shares but if I had free cash I would consider buying some.
Happy investing all!
Tuesday, August 28, 2012
CLBH Carolina Bank Holdings
This entry will highlight the financial strength of Carolina Bank Holdings (CLBH) and make a case for further advancement.
We can start with the PE, or price to earnings ratio. Although many will contend PE ratio is not necessarily a good indicator of anything, I do think when PE ratios are in the single digits on a company with earnings growth, there is a justifiable reason for advancement. In good times when banks are profitable, an extended bank with a reasonable PE may reach 12-15 times earnings.
CLBH has a trailing twelve month earnings per share number of $1.22.
One can see at current prices CLBH has a PE of just 6. When the stock began the recent breakout, clearing the August 2nd high of $6.07, the PE was a mere 5. To try and project a reasonable evaluation of the stock at 10 times earnings would put the stock up around 65% from current prices, or around $12.20 a share. If one were to think about an extended run where the stock may reach full value, if not over valued, a PE of 15 would put the stock two and half times its value at today's close. To see a valuation of 10 times or even 15 times earnings is not a stretch, one need only look at the industry group, Mid Atlantic Banks, as composed by Yahoo. Here one will see CLBH is at the low end of the range, actually one of the cheapest banks when using PE as a valuation.
Of course PE isn't everything. The bank could be heavily in debt and about to go under, but still churning a profit. So let's look at the balance sheet. The company has equity of $50.14 million, or $14.80 per share. This means CLBH is trading at roughly half of its equity per share. Compare this to some more well known banks, such as Fifth Third (FITB), which is currently trading at twice equity.
There are many ratios a bank uses, but some of the more important ones were highlighted in the company's recent earnings release:
"Carolina Bank, the subsidiary of Carolina Bank Holdings, Inc., continued to maintain 'Well Capitalized' status, the highest regulatory capital measure. Capital ratios at June 30, 2012 for Carolina Bank improved to 8.79% for Tier 1 leverage, 11.12% for Tier 1 risk-based, and 14.12% for total risk-based."
and
"Non-performing loans to total loans held for investment decreased to 4.74% at June 30, 2012 from 5.95% at June 30, 2011. Non-performing assets to total assets decreased to 4.16% at June 30, 2012 from 6.26% at June 30, 2011."
Clearly from a regulatory perspective the company exceeds the government standards. From a non performing assets/loans perspective, the company is showing great improvement on a year over year basis, so much improvement the company chose not to record any provisions for loan loses in the most recent quarter.
One can also look at things like, return on equity. This essentially is a measure of how well a company is using its equity to produce earnings. Again one can look to Yahoo's table above and sort it bey ROE. CLBH is one of the better performers in the group.
Lastly I want to look at earnings growth on a year over year basis.
From this table one can see each of the last seven quarters the company has reported year on year earnings growth, concluding in record quarterly profits for the most recent quarter, the third such quarter of record quarterly profits in a row. Now one caveat on these very nice numbers ties in to the above mention where the company did not record any allowance for loan losses. Eventually, the company will have to start taking this charge once again and earnings will not sustain themselves at the high level of $0.58 per share, however the $0.20-$0.30 per share range seems to be a reasonable expectation if the company is recording a normal amount of provision for loan losses. On a yearly basis a reasonable expectation of the company's earnings is then around $1.00-$1.10 per share assuming no change in current business conditions. Still plenty of earnings to call this stock undervalued.
Clearly this bank is undervalued relative to its peers, undervalued relative to most stocks, and undervalued in my mind. The company's latest quarter featured quarterly profit over twice as high as any other quarter in the company's history. With such a low valuation relative to equity, earnings, the financial sector, and the market in general, I can only assume there is much upside potential in this company's stocks.
However, the stock had a very nice Monday this week, climbing over 15%. Will the stock advance from here, consolidate, pull back, or base, we shall see. From a fundamental perspective this bank only has an upside potential.
Disclosure: I purchased this stock at $6.03 per share before the recent move began. I do not have a particular idea of when or at what price I want to sell and adjust my own mental stops on a daily basis.
We can start with the PE, or price to earnings ratio. Although many will contend PE ratio is not necessarily a good indicator of anything, I do think when PE ratios are in the single digits on a company with earnings growth, there is a justifiable reason for advancement. In good times when banks are profitable, an extended bank with a reasonable PE may reach 12-15 times earnings.
CLBH has a trailing twelve month earnings per share number of $1.22.
| PE | ||||||
| Recent pivot point | $ 6.07 | 5.0 | ||||
| Current price | $ 7.47 | 6.1 | ||||
| Reasonable PE of 10 | $ 12.20 | 10.0 | ||||
| Extended PE of 15 | $ 18.30 | 15.0 |
One can see at current prices CLBH has a PE of just 6. When the stock began the recent breakout, clearing the August 2nd high of $6.07, the PE was a mere 5. To try and project a reasonable evaluation of the stock at 10 times earnings would put the stock up around 65% from current prices, or around $12.20 a share. If one were to think about an extended run where the stock may reach full value, if not over valued, a PE of 15 would put the stock two and half times its value at today's close. To see a valuation of 10 times or even 15 times earnings is not a stretch, one need only look at the industry group, Mid Atlantic Banks, as composed by Yahoo. Here one will see CLBH is at the low end of the range, actually one of the cheapest banks when using PE as a valuation.
Of course PE isn't everything. The bank could be heavily in debt and about to go under, but still churning a profit. So let's look at the balance sheet. The company has equity of $50.14 million, or $14.80 per share. This means CLBH is trading at roughly half of its equity per share. Compare this to some more well known banks, such as Fifth Third (FITB), which is currently trading at twice equity.
There are many ratios a bank uses, but some of the more important ones were highlighted in the company's recent earnings release:
"Carolina Bank, the subsidiary of Carolina Bank Holdings, Inc., continued to maintain 'Well Capitalized' status, the highest regulatory capital measure. Capital ratios at June 30, 2012 for Carolina Bank improved to 8.79% for Tier 1 leverage, 11.12% for Tier 1 risk-based, and 14.12% for total risk-based."
and
"Non-performing loans to total loans held for investment decreased to 4.74% at June 30, 2012 from 5.95% at June 30, 2011. Non-performing assets to total assets decreased to 4.16% at June 30, 2012 from 6.26% at June 30, 2011."
Clearly from a regulatory perspective the company exceeds the government standards. From a non performing assets/loans perspective, the company is showing great improvement on a year over year basis, so much improvement the company chose not to record any provisions for loan loses in the most recent quarter.
One can also look at things like, return on equity. This essentially is a measure of how well a company is using its equity to produce earnings. Again one can look to Yahoo's table above and sort it bey ROE. CLBH is one of the better performers in the group.
Lastly I want to look at earnings growth on a year over year basis.
| Earnings per share | ||
| 4th quarter 2010 | $ 0.12 | $ (0.53) |
| 1st quarter 2011 | $ 0.10 | $ - |
| 2nd quarter 2011 | $ (0.11) | $ (0.54) |
| 3rd quarter 2011 | $ 0.16 | $ (0.62) |
| 4th quarter 2011 | $ 0.21 | $ 0.12 |
| 1st quarter 2012 | $ 0.27 | $ 0.10 |
| 2nd quarter 2012 | $ 0.58 | $ (0.11) |
From this table one can see each of the last seven quarters the company has reported year on year earnings growth, concluding in record quarterly profits for the most recent quarter, the third such quarter of record quarterly profits in a row. Now one caveat on these very nice numbers ties in to the above mention where the company did not record any allowance for loan losses. Eventually, the company will have to start taking this charge once again and earnings will not sustain themselves at the high level of $0.58 per share, however the $0.20-$0.30 per share range seems to be a reasonable expectation if the company is recording a normal amount of provision for loan losses. On a yearly basis a reasonable expectation of the company's earnings is then around $1.00-$1.10 per share assuming no change in current business conditions. Still plenty of earnings to call this stock undervalued.
Clearly this bank is undervalued relative to its peers, undervalued relative to most stocks, and undervalued in my mind. The company's latest quarter featured quarterly profit over twice as high as any other quarter in the company's history. With such a low valuation relative to equity, earnings, the financial sector, and the market in general, I can only assume there is much upside potential in this company's stocks.
However, the stock had a very nice Monday this week, climbing over 15%. Will the stock advance from here, consolidate, pull back, or base, we shall see. From a fundamental perspective this bank only has an upside potential.
Disclosure: I purchased this stock at $6.03 per share before the recent move began. I do not have a particular idea of when or at what price I want to sell and adjust my own mental stops on a daily basis.
CEMI Chembio Diagnostics
CEMI, a maker of a rapid test for HIV, syphilis, and canine leishmaniasis, has had a large 20k bid at $4.54 to $4.56 range. The 50 day average volume is just under 17,000 shares so this one bid represents a whole days worth of volume. Perhaps this $4.50-$4.55 range is a solid spot of support?
The company itself is profitable and growing rapidly. Future profits could swell significantly if widespread use of the rapid HIV test becomes common or mandatory due to regulations.
Monday, August 27, 2012
Small bank stocks are hot!
In the last six weeks or so I have noticed small bank stocks are pretty hot. I dove into some SEC filings and press releases.
I find many small banks are fundamentally sound and well undervalued. From a PE perspective there are many under 10. The balance sheets are as clean as I have seen them in the 18 years I have been studying balance sheets. I find now I can understand each line, versus five years ago the banks had so much extra gunk they themselves didn't always know what to make of their situations.
My theory here is after the financial collapse a few years back banks of all sizes were forced to clean up or go under. The banks which survived independently are therefore extremely healthy. Additionally, the banks which already had sound balance sheets were able to absorb some fairly interest rate spreads from the troubled banks or just coast along on their own strength.
Another phenomenon we have is the increasingly lower borrowing costs, resulting from stronger balance sheets. From about 2009-2011 what money small banks were able and willing to borrow was lent at a high interest rate. Now their borrowing costs are declining, enabling them to refinance existing debts, while extracting a larger spread on new loans.
Because of this, there is plenty of room for banks to expand their income base on the back of cheap interest rates, without falling into the trap if relying on fees generated to produce income. My contention is banks are at their best when they are generating healthy interest rate spreads, not on fees.
Over the next few days, if I choose to blog more, I will highlight a few of these small banks to help others see what I have been observing.
Thanks for reading.
I find many small banks are fundamentally sound and well undervalued. From a PE perspective there are many under 10. The balance sheets are as clean as I have seen them in the 18 years I have been studying balance sheets. I find now I can understand each line, versus five years ago the banks had so much extra gunk they themselves didn't always know what to make of their situations.
My theory here is after the financial collapse a few years back banks of all sizes were forced to clean up or go under. The banks which survived independently are therefore extremely healthy. Additionally, the banks which already had sound balance sheets were able to absorb some fairly interest rate spreads from the troubled banks or just coast along on their own strength.
Another phenomenon we have is the increasingly lower borrowing costs, resulting from stronger balance sheets. From about 2009-2011 what money small banks were able and willing to borrow was lent at a high interest rate. Now their borrowing costs are declining, enabling them to refinance existing debts, while extracting a larger spread on new loans.
Because of this, there is plenty of room for banks to expand their income base on the back of cheap interest rates, without falling into the trap if relying on fees generated to produce income. My contention is banks are at their best when they are generating healthy interest rate spreads, not on fees.
Over the next few days, if I choose to blog more, I will highlight a few of these small banks to help others see what I have been observing.
Thanks for reading.
8/27/12 watch list
Might try this blogging thing again.
Stock charts of interest:
FRS post breakout formation
CSCD flag
CRWS high tight flag with a really long flag. Or a really long consolidation period. Either way
CECE post breakout formation/flag
REED organized pull back
TPL big base. This is a land trust
CBM flag
NGNM a high tight flag with a short flag
BDSI held the 50 dma formed a nice tight base
APP in a handle
AFFY base of sorts
OFI in a handle and exploring its strategic alternatives or some such
KSW small cap base building with interesting up volume last week
PAR long flat base
small bank stocks:
FCAL BOCH PULB MFSF SONA MBTF
Other interesting movers off watch list today:
NTE CLBH DWCH
All stocks above charted at finviz for quick browsing:
http://www.finviz.com/screener.ashx?v=211&t=FRS,CSCD,CRWS,CECE,REED,TPL,CBM,NGNM,BDSI,APP,AFFY,OFI,KSW,PAR,FCAL,BOCH,PULB,MFSF,SONA,MBTF,NTE,CLBH,DWCH
Stock charts of interest:
FRS post breakout formation
CSCD flag
CRWS high tight flag with a really long flag. Or a really long consolidation period. Either way
CECE post breakout formation/flag
REED organized pull back
TPL big base. This is a land trust
CBM flag
NGNM a high tight flag with a short flag
BDSI held the 50 dma formed a nice tight base
APP in a handle
AFFY base of sorts
OFI in a handle and exploring its strategic alternatives or some such
KSW small cap base building with interesting up volume last week
PAR long flat base
small bank stocks:
FCAL BOCH PULB MFSF SONA MBTF
Other interesting movers off watch list today:
NTE CLBH DWCH
All stocks above charted at finviz for quick browsing:
http://www.finviz.com/screener.ashx?v=211&t=FRS,CSCD,CRWS,CECE,REED,TPL,CBM,NGNM,BDSI,APP,AFFY,OFI,KSW,PAR,FCAL,BOCH,PULB,MFSF,SONA,MBTF,NTE,CLBH,DWCH
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