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| Date: Friday 05th 2008f September 2008 05:34:15 PM |
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Armoring Your Investment Return 06/29/2005 |
| By: Novice Investing Staff | ||||
| Industry Background | ||||
| Armor Holding Inc. (AH) is in the business of manufacturing, designing and marketing security products and armor systems for security enforcement It offers its products both in military and commercially. Commercial products include: pepper spray, hunting accessories and others. Military products include: armor in military vehicles, cockpit airbag systems, body armor, helmet, biological masks and many others. | ||||
| Competitors in this arena include DHB industries and certain segments of Lockheed Martin and General Dynamics. | ||||
| Defense spending by the US Government has ballooned since George Bush' presidency and especially after the Iraq war in 2003. Now, in 2005, several US lawmakers are suggesting us to declare that the Iraq is over and pull our troops out of Iraq. This uncertainty causes defense producers such as Armor Holding to trade at low valuation. | ||||
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Our task now is to determine if Armor Holdings can maintain a high annual EPS of $ 3.40 as estimated in Yahoo! Finance. If so, then Armor Holdings is a good investment at recent price of $ 37.00. |
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| Quarterly Current ratio that is > one and is stable or rising. | ||||
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AH |
Dec 04 | Sep 04 | June 04 | Mar 04 |
| Current Ratio | 1.546 | 3.56 | 3.78 | 2.70 |
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Analyzing its short-term liquidity, Armor Holding appears to have a worsening trend in its current ratio. Analyzing it further, however, reveals a $ 344 M of Armor Holding's long term debt is coming due. This boosts its current liability by $ 344 M. If Armor Holding were to pay this portion now, its current ratio will go up to 2.55. Quarterly current ratio is relatively stable and increasing for AH over the last four quarters. The company would have enough liquidity for at least a year. Prodding out the balance sheet, as of Dec 04, AH had a $156.8 M of long term debt compared to the cash balance of $421.2 M. At this point of time, It is fairly safe to assume that risk of bankruptcy for AH is minimal. |
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| Fair value of the stock is 3% above current free risk interest rate (10 yr bond) | ||||
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As of 06/29 2005, 10 yr bond yields 3.90%. We assume interest rate to rise slightly to 5% within a year. The stock needs to yield 8% to give it a fair value. P/E value for AH is therefore12.5. EPS for AH for fiscal year '05 is predicted to be $ 2. 83. For more details about EPS calculation, please go here. Real price for AH is therefore $ 35.60. Meanwhile, Cash per share for AH is $12.03/share and Long Term Debt per share = $4.47/share. Real price = stock price - (cash+ short-term investment)+ long-term debt. Stock price = $ 35.60+ $ 12.03 - $ 4.47 = $ 43.16/share. |
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| 50% potential stock price appreciation within a year. | ||||
| Current price for AH is $ 38.59/share. Clearly this is not a 50% potential appreciation. However at a price of $ 28.77/share, it represents a 50% potential stock appreciation of our stock price fair value of $ 43.16/share. | ||||
| Conclusion | ||||
| For now, I believe that it is prudent to be patient and wait until AH sells at $ 28.77/share. Once it reach that price, the portfolio should definitely buy AH. Until then, we will wait for the right price while looking at further development at the company. | ||||
| For other related articles for our portfolio, please click here. | ||||
| Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Armor Holding Incorporated (AH) or other securities. | ||||
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