Key Investment Considerations:
Maintaining Speculative Buy rating. Increasing (12-month) price target to $5.45 from $5.00 per share due to
improved sector valuation.
Profit growth will be driven by gross margin gains stemming from the purchase of a royalty agreement, high
margin simulation software sales, and funded collaborations, which carry a gross margin of over 86%.
Use of software tools and analytics for drug discovery and development is becoming more widespread within
the pharmaceutical and biotechnology industries due to reduced R&D budgets.
SLP has penetrated only 10% of the 1,000+ potential pharmaceutical and biotechnology customers, leaving
ample revenue upside. Toxicology products, release of MembranePlus™ in FY13, and development of a new
chemical entity molecular library could underlie further revenue upside into FY14.
4Q12 income from continuing operations (reported 11-19-12) was $349,000 or $0.02 per share, up from $170,000 or
$0.01 last year, on a 14.9% sales increase to $1.6 million. 4Q12 sales and EPS were in line with our forecast.
Reduced our FY13 EPS projection by $0.03 to $0.19 on sales of $10.3 million (down $500,000). We anticipate
20 fewer new customers (60), a larger scientific team (3), and laboratory experiment expenses for development
of a second new chemical entity that was unanticipated earlier.
In FY14, we project 12.5% sales growth to $11.5 million and EPS of $0.23 per share. After four years of stable
pricing, we anticipate a price increase on software offerings, traction gains by MembranePlus, and a total of
70 (new) customers, up from 60 in FY13 and 43 in FY12.
For the full report goto Taglishbrothers
How is this positive?
Reduced our FY13 EPS projection by $0.03 to $0.19 on sales of $10.3 million (down $500,000). We anticipate 20 fewer new customers (60),
I don't believe their potential is 900 more customers. Otherwise they would have penetrated these over the last 5 years.
Taglich Brothers has a history of overestimating the target price. Look at 2012 where their target was 5.70 until they reduced it to 5.00. They also increased their target price based on sector valuation increases. That makes no sense, increased earnings increases the stock price. Maybe a .02 cent yearly increase, who is going to buy on that news?.
You keep saying the stock price will be higher next year. But you have been saying that for years. It never materializes.
The bottom line is a 700K revenue growth per year is never going to excite wall street enough to increase the stock price. My advice is for Walt to sell the company to a larger company who understands how to significantly grow the company and then shareholders like myself who have held large quantities for a long time might have a chance at getting rewarded.
"You keep saying the stock price will be higher next year". Actually that's close but not exactly correct... I have said that SLP will be a larger company next year. As far as the stock price goes that has been a fantastic investment for me. I remember when SLP had a market cap UNDER $4 million... Today the market cap is $69 million... that's a 17.25 X increase on any money you had invested. Admittedly it took 10 years to do it but show me something better. Another way to look at it is if you had invested $25,000 it would now be worth over $ 400,000. BTW, if you should find something better it needs to have zero debt, doesn't dilute stockholders by giving stock away for crazy ventures, have a small market cap to allow for lots of growth and have management that is second to none, sales and earnings need to be on an up trend and stock holder equity has to increase almost every year.
Just as a side note... SLP stock was up 45.3% in 2012... But I know... That wasn't enough to make up for anybody that bought in 2007.
SLP is the clear leader in their field and I think they have a long way to go before this market is maxed out... In fact, the computer drug discovery market hasn't even really started yet. Drug companies are in real trouble with patents expiring and the new drug approvals hitting a brick wall... They need all the help that they are able to get their hands on.
So yes... I am willing to wait another 10 years and watch my investment increase by another 17 X... Do the math.
Any stock portfolio should be sensible and meet the objectives of the investor. A portfolio should be well diversified with enough positions so that a single stock does not do significant damage if things go bad. Also, the selections in a portfolio need to realistically reflect the risk that a person is willing to accept. I have a high tolerance for risk so I hold a smaller number of positions than what is considered good diversification. Also, my position sizes are larger because of the reduced number of stocks I hold. I tend to manage this increased risk by keeping a very close eye on my stocks every day. So for me SLP ends up being my largest position by a wide margin. But, that's because I have a high level of confidence in what Walt is doing. He holds almost 40% of the outstanding stock and has ALWAYS made the correct decision as far as stock holders go. He has never done anything that diminishes the value of his position... and therefore ours as well.
As long as he continues to grow the company I will continue to hold all of my shares... I have done the math :-)
Any investment should fit the comfort level of the investor. For some SLP is near perfect and they will hold a larger position than others that are either not satisfied with the growth rate or feel the risk is too high. Each person has to decide if they have the correct amount of SLP in their portfolio or perhaps none at all.