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Saturday, November 12, 2005

Another quick look at Eternal Technologies (ETLT)

Let's do the same exercise for ETLT (that we did for YaSheng below).

At the start of 2004, ETLT had $8.4 million in fixed assets ($2 million depreciation).

2004 revenues were about $17 million.
Gross margins were over 38%.
Operating margins were 25%.
Net income was $4.2 million, or a 50% return on fixed assets. Ok, so this is a bad comparison.

Depreciation schedule:
Buildings: 25 years
Everything else: 5 years

Now let's jump ahead to the latest quarter, Q2:
Total assets are $46.3 million (including $2.7 million in accumulated depreciation). $21.3 million of that is cash. So let's say they have $25 million in non-cash assets (the interest income is only a tiny part of net income, so this is fair). Even going back and taking 2004's earnings (2005's earnings are running twice as high), that's a 16.8% return on assets.

ETLT is not nearly as much of a capital intensive business as YaSheng and ETLT has a high return on assets. This is not the least bit surprising.

Here's an interesting thing to consider. ETLT has 70 cents in cash per share. Shares are selling for 70 cents. Earnings last year were 14 cents. Earnings for the first half of 2005 were 6 cents (vs 3 cents last year). Total liabilities are less than 10 cents a share.

In other words, you could liquidate the company, throw away all the assets except the cash, collect only 50% of the accounts receivable, pay off all the bills and debts, and you'd end up with more than 76 cents per share and the stock is only selling for 70 cents... and I've already gotten a 40% gain out of it! and that was after the stock had already nearly tripled in price!

Amazing, but it seems like I've seen this kind of thing before... ah yes, ValueClick at $2.00 a share.

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