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There haven't been any BLOG
entries so far this week, but your comments and questions are welcome on
the three most recent: AMW, NWKI, and VTSI. I am following
the current market melt down- stocks are really getting clobbered right
now. If we don't bounce in earnest in the near term, I'll be looking for
a serious correction. However, I believe a bounce is in the cards as the
market has already priced in a lot of bad news.
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American WaterStar
(AMEX: AMW): Conference Call Review |
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Chairman Roger Mohlman conducted
a conference call concerning the state of affairs at American Water
Star on Tuesday, and the call gave us some long awaited hard information
worth reviewing.
I heard some very upbeat statements
of fact which lead me to believe the worst might be behind us. As many
of you know, I have been suggesting a very conservative approach to this
stock until the facts prove out Mr. Mohlman's November prediction of $80
million in '05 revenues. If the company can achieve an $80
million annual run rate, this stock has tremendous upside potential.
A little historical review is in
order at this time. AMW became an investors' favorite last year
surrounding the introduction of the company's proprietary tropical fruit
waters marketed under the Hawaiian Tropic brand. When WalMart
signed
on to carry their beverages, the stock ran up to about $1.80 and
made it's all time high.
The WalMart relationship turned
south last summer, and the stock followed suit. Compounding the problem
was the company's relationship with the manufacturer and supplier of sugar
substitute Splenda. In short, by the end of last summer the company lost
both it's largest customer and one of the key ingredients.
However, during that same time frame,
the company set out on an ambitious plan to acquire and retrofit bottling
facilities throughout the Southern United States. They currently own bottling
facilities in Florida, Mississippi, and Arizona.
As stated in previous editions, this
is the company that insources. They have an infrastructure in place that
could yield close to $250 million in revenues when operating
a full capacity. The majority of their revenues would not be derived from
their own products- they would act as a copacker for other labels.
One of the key items I learned during
the conference call was a complete surprise. Despite having acquired the
bottling facilities at the end of last August, and despite having significant
order flow for those plants, none of them has been fully operational to
date. Apparently, their Phoenix plant should be fully operating in about
2 weeks, with the others to follow closely behind.
Public disclosure from AMW
has been thin for the last several months, but I believe that will change
from here forward. The 2004 audited numbers are due out soon, and I imagine
we are going to see a picture of a company that hemorrhaged cash in 2004.
Anticipated revenues never came through over the summer months, and buying
and retrofitting three bottling plants cannot have been cheap, especially
in light of requiring seven months to get the plants operational. If you're
concerned about trailing losses, you will not like their year end numbers.
The year end numbers are a snap shot
of the past. The stock market generally looks forward. Looking forward,
I heard some statements in the conference call that lead me to believe
the worst is behind for AMW.
In my view, Mr. Mohlman's statement
that AMW current has $38 million in orders on its books was the
single most important item I heard in the entire call. If
the company can get it's plants online and fill that order with any kind
of reasonable gross margin, this stock should trade to much higher levels.
After a year of disappointment and
delay, this company should be turning the corner right now. Mr. Mohlman
informed us revenues for Q1 '05 would be up 340% over Q1 '04. However,
if I am doing the math correctly, that would mean the company will only
achieve about $1.5 million in revs. AMW will need to deliver a much
higher revenue run rate to get this stock going in the right direction.
Filling $38 million in orders can solve that problem.
Also, on the plus side, the insider
transactions are becoming quite interesting. Most people don't understand
the importance of insider trading. They believe selling is bad, and buying
is good.
Insider selling is not necessarily
bad, and is often misinterpreted. However, insider buying is always a good
sign. Insiders never make open market purchasers unless they are convinced
their company is undervalued and headed in the right direction.
According to the most current table
I can find, Chairman Roger Mohlman has purchased 93,800 shares of AMW
in the open market so far in 2005. Board member Arthur De Joya has purchased
68,500 shares.
The insiders are buying. Someone
believes, and it's the people with the most at stake.
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