GeoNuggets® - Quick Check List Highlighting Undiscovered Opportunities
On October 28, 2011 we coded NOIZ as a GeoSpecial/Bargain @ $6.80
Company Description: Manufactures microwave and radio frequency (RF) components and integrated subassemblies used in a variety of defense, aerospace and commercial applications.
Data Ended 11/02/2011
- Fiscal Yr. End: March
- Price = $7.14
- Fully-Taxed Trailing EPS = $0.48
- GeoInvesting Fully-Taxed EPS Estimates = $0.76
- GeoInvesting projected near term growth rate = 130%
- P/E based on Fully-Taxed Trailing EPS = 14.88
- P/E based on GeoInvesting Fully-Taxed EPS Estimates = 9.39
Criteria Check List
NOIZ Meets 8 out of 10 of the most important GeoBargain® Requirements
Additional factors to consider in analysis
- Effective Internal Controls: Yes
- Need to raise capital: tbd, but likely no; Waiting for release of 2nd Qtr. 2012 filing
Reasons for Optimism
- Multi year refocused efforts finally paying off.
- NOIZ has went away from being a prime contractor to government customers and has opted to become a subcontractor to such businesses by developing strong relationships with other larger prime government contractors such as Boeing, General Dynamics and Lockheed Martin. For a small company like NOIZ bidding for contracts vs. larger competitors is not an optimal situation to be in. Now they can gain access to a larger pool of contracts and don't have to worry as much with obstacles from dealing directly with the government.
- Focus on higher margin, less cyclical product categories as opposed to commodity type products.
- Historically, the company focused its efforts on manufacturing components for its customers. Customers could then use these components (as well as those from other sources), to build entire subsystems. However, a developing trend for customers to purchase entire subsystems prompted NOIZ to create a division that builds such systems (mainly in the higher margin pockets of its market).
- After years of EPS growth inconsistency and stagnation it appears that NOIZ could be entering a period of a new EPS growth cycle. In recent history, EPS had never eclipsed $0.12. The company just reported EPS of $0.24 for its fiscal 2012 second quarter. If this new level of EPS can be maintained we believe that shares could significantly surpass our valuation scenarios presented later in this report. Furthermore, the current revenue stream has mainly emanated from its stable (but not the most exciting growth profile) component business. However, once the new subsystems business gains traction, new higher minimum revenues thresholds could be in the cards.
- NOIZ may have reached a revenue/margin inflection point driven by operational efficiencies. The company achieved 2nd quarter revenues of $11.63 million, representing sequential revenue growth from the 2012 1st quarter of 16%. However, pre-tax margins nearly doubled to ~16%. Some of this operating leverage has resulted from the company devoting less resources to new product testing/development in its subsystems business which are now ready for deployment. Resources can now be deployed to higher margin venues. Once the subsystems revenues kick in we feel it is possible that margins could see further improvements. NOIZ currently is qualified to manufacture 4 subsystems (three government; one commercial), which it is actively marketing.
- Favorable industry trends:
- The acceleration of the adoption of the digital domain: "A key driver of demand for our products is the pervasive transformation of information from the analog domain to the digital domain. Because digital technologies require greater degrees of precision and rely more on miniature circuits than analog technologies, testing is critical for the rapid commercialization of reliable products necessitated by broadband and wireless communication technologies." (NOIZ provides testing services)
- As mentioned earlier, the large defense prime contractors have shifted their business strategies to focus on platforms and systems integration and consequently have subcontracted the development of many systems and subsystems (new services that NOIZ provides).
- The Stock's small float of just 3.2 million could lead to a sudden and sharp increase in its share price if momentum players stumble upon it.
GeoTeam overall subjective/confidence comfort level: Pertains to the ability of a company to achieve solid and consistent EPS growth over the next several quarters (from 1 to 10): 5 (We would like to see a few more quarters of elevated financial performance)
Potential Valuation Scenarios if the company can achieve its EPS growth goals
Short-Term Potential value based on fully taxed adjusted trailing EPS
P/E 25 * $0.48 = $12.00
Short-term Potential value based on Fiscal 2012 fully taxed adjusted Implied EPS Guidance
P/E 15 * 0.76 = $11.40
- NOIZ has had a history of inconsistent quarterly EPS growth performance (new business focus is aimed at addressing this issue)
- We would like to see a few more quarters of elevated financial performance before concluding that the fiscal 2012 2nd quarter was a true breakout period. (need to see the subsystems side of the business gain traction)
- Cancellation/delay of backlog
- Customer concentration
- The company still has exposure to government business which opens it up to the risk of budget cuts as the U.S. Congress addresses the debt crisis. However, the company does focus on areas that may be less apt to this risk. Furthermore, the company's ability to help its customers reduce implementation costs and deliver product quickly could give it an edge over its competitors.
Valuation scenarios are not intended to be investment advice, but are scenarios based on some commonly used investment guidelines. They are provided to aid investors in making their own investment decisions.