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Monday, May 29, 2006

Checking back with Mr. Market: 2

Checking back with Mr. Market: 1

C O M P A N I E S - I - R E J E C T E D

Butler National Corporation BUKS sec Stock was around 65 cents. It dropped to below 30 cents, then went above 60 cents and is now 35 cents at the ask. The problem I had with the stock is that the business has a one-shot type of revenue source for overauling Learjet 20s for reduced vertical separation minimums. The quarter ended Jan 31, 2006 had much lower sales than 2005. Essentially breakeven. They're hoping to get FAA approval for Lear 30 installations to begin in Q4. So perhaps there's lots of work for them in the future. When you look at the revenue changes, you'd expect to see wild stock price swings. The aircraft modifications are low margin. Share count increased enormously (handed out options like candy in 2005). Not surprising to see wild price swings.

The Experimental Agency XAIN The stock has gone nowhere 45 cents/51 cents. Here's what I wrote:
Results have been pretty crappy, but it's not clear to me yet whether this is because the industry and/or company is crappy or if they're simply ramping up. If they're ramping up, the stock would be worth at least 70 cents. It's currently selling for about 43 cents.
Nothing surprising.

Yi Wan Group, Inc. YIWA I thought they might be a good investment (stock was around 35 cents) until I started seeing bad results for the hotels. I last looked at them here at the end of Jan 06:
Stock has tanked to 8 cents on the ask from 28 cents. They never released Q3 results, their website has expired, there's no news. This is very troubling. I want to continue following it just to see what happens.
The stock went back up to 20 cents and is now back to 8 cents again (last sale). Nothing surprising.

Schuff International SHFK Steel company. I tossed them because I believed they had no pricing power, figuring earnings would be 25 cents/share, making the stock worth $4.00 and selling for $3.50. Mr. Market disagreed! The stock now sells for $11.15. Three bagger! If we look at Q1 2006, we see a fairly strong balance sheet, lots of debt leverage, revenues increased around 50% but gross margins decreased to 18% from 21% (aha!). Net income for the quarter increased to 81 cents from 42 cents diluted. Free cash flow is actually lower than the prior year's Q1, but it's all lumpy. The answer is that these guys have been doing acquisitions and earnings are very high [right now?]. If we look at the annual report for 2005, we see that revenues in fact have been climbing for years. Earnings per diluted share were $2.42, which means the stock was selling for a bit over one-times-earnings. Very silly. Giving myself some credit, I did see that it was probably cheap here. However, overall I was wrong. My estimate of earnings was ridiculously pessimistic.

Solitron Devices SODI The stock jumped to $2.20 with no news in October 2005. I stopped following it soon after. The stock is now selling for $4.00, down from around $4.50. 3 bagger! Did I miss it, or was it not easily knowable? I noted a lot of big issues here such as bankruptcy obligations, superfund site issues. Let's look at SEC filings. They earned 10 cents diluted in Q2 (ended Aug 31) announced in October 2005, 23 cents for the first 6 months. I was too focused on what could go wrong and not focused enough on how blatantly cheap the stock was. Sound familiar?

With both SHFK and SODI, I took something fairly simply and made it too complicated.

T E M P O R A R Y - I N V E S T M E N T S

YaSheng Group YHGG Unless the company is a partial or total fraud (which is entirely likely in my opinion), I'd expect the numbers to continue to be good and for the stock to potentially climb to around $6.00. The problem is the un-audited results (but ETLT proved that even having auditors doesn't stop errors in numbers-adding-up). The stock price is around $2.90, which is entirely within reason based on my thinking at the time. Today (May 29, 2006, Memorial Day), the company announced results for the year ending Dec 31, 2005. Wow, they're even later than ETLT. Revenues were up somewhat. Earnings again are 40 cents per share. They're still trying to get an audit complete, but went ahead and announced results for 2005. Haha! This press release points to a non-existent financial statement, unless the results for 2005 are "404 not found". So they're still screwing up. I was correct so far.

...for Memorial Day

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