The financial statement for the second quarter is posted on the Armanino website. It shows that there is a major buildup of cash (over 11 cents per share held in cash as of June 30, 2015.) The equipment upgrades are still underway and will be completed during the current quarter. The total cost of the upgrades is only about $500,000 and some of that cost was already paid as of 6/30/15. That means that there is a ton of cash sitting with the company even after setting aside funds for the capex. My prediction is that we will see a rise in the dividend from 1.8 cents to 2.0 cents per quarter and we may also see a special.
I think Hotpanera2 understates the upside. If the acquiring company is one with its own sales and distribution network, it could add the AMNF products and eliminate the brokers who now account for more than half of all Armanino revenue. That could increase earnings by roughly 5 cents per share. That does not require any increase in the market size; it is just higher profits on the current level of sales. Obviously, the buyer would attribute some of the cost of these sales to AMNF, but we still have at least a 25% increase in profitability. Then add all the factors that Hotpanera mentions and we are off to the races. in other words, for the right buyer, Armanino would make a great purchase. The price could easily hit $3.00 or even more.
It's worth taking a moment to step back to consider today's results mean for the stock. Just using the figures for the first half of the year, we can project the total year's EPS at roughly 13.75 cents. Armanino has been pretty consistent over time in averaging roughly 48% of annual earnings during the first half of the year. With a rather reasonable multiple of 19, that takes us to 2.62 per share. The stock, however, has been growing consistently year after year, so I think that a higher multiple is merited. The increase in production capacity in the second half also ought to improve the EPS a bit more than is usual in that period. Today's results are, therefore, in line with a price target of $3 per share. Even at $2.39, the stock remains a bargain.
Don't count on the div hike just yet. If their new equipment installation is completed without any problem, then we could see a raise. If the project is not completed, however, I think any raise will be put off.
The seeking alpha piece is a bit amateurish. The target is also too low. If Armanino can put forward EPS figures next week of 3.5 cents for the second quater, then the target ought to be $3.00.
It has been a busy two days for the stock. The gyrations down and the recovery were interesting to watch. First someone sold who did not have the patience to trade the stock properly. Then we saw an inexorable rise back to the 2.30 level. It was a buying opportunity.
There was no 70000 share block. There was someone who sold, but it was a batch of different trades. And they were not "arranged". I know because I was the buyer of 8000 shares at two different prices (2.17 and 2.14). There's no way to know why the sudden drop. Perhaps someone panicked after hearing that the NYSE had gone down. Maybe someone who invested in China got a margin call. Perhaps a fund that had bought a batch prior to the end of the quarter to look good was just getting rid of the excess. Maybe bad news about the earnings leaked (although I truly doubt that). Maybe none or all of those reasons apply.
The point here is that in a short time we will have the second quarter earnings report. It will far outweigh the importance of some price gyrations during a rather strange trading day. If the EPS can hit 3.5 cents, the stock ought to off to the races.