People who are familiar with the healthcare sector might have found a different phenomenon in the New Year that investors start switching their focus on companies which have cutting edge products and long-term profitability, like Heska Corp. (HSKA) and Angiotech Pharma (ANPI).
HSKA has had more than 100% gains since last December and kept challenging $1 resistance in the past week. The stock price is still attractive at this level in view of its prospect; Although ANPI missed expectation for last quarter’s earning, it still has a 15% gain after my introduction. This reflected investors’ confidence on the company’s products and sales ability. I still will keep it on the top of my watch list.
Another stock which has similar situation to HSKA and ANPI is PDEX. If you make a comparison between PDEX and HSKA, you will find out that PDEX is a perfect replica of HSKA. If I have to tell a difference, then I think PDEX is undervalued more.
About Pro-Dex, Inc. (PDEX)
PDEX specializes in the development and manufacture of technology-based solutions that incorporate embedded motion control, miniature rotary drive systems, and fractional horsepower DC motors, serving the medical, dental, semiconductor, scientific research and aerospace markets.
The company’s products are used in hospitals, dental offices, medical engineering labs, scientific research facilities and high tech manufacturing operations around the world.
PDEX, like other small cap companies in the healthcare sector, was severely impacted in the worldwide economic crisis. The Market is gradually warming up, so are PDEX’s product sales. The odd thing is that its stock price didn’t rebound with the market. From the volumes in the last several months, we can tell that it is staying in a forgotten corner.
But I believe that PDEX’s stock price will catch up with the market soon, not only because that it is undervalued, but also because that some catalysts are coming near.
Let’s start from PDEX’s fundamentals:
1, sales for the second quarter ended December 31, 2009, increased 9% to $5.7 million, and successfully turned from loss to profit. Gross profit in last quarter was $2 million and net profit was $580,000;
Sales for Six months ended December 31 was about $11 million and about $21 million for the 2009 fiscal year, but the market capital of PDEX is only around 5 million dollars!
We can tell that this is way undervalued.
2, at December 31, 2009, PDEX had cash and cash equivalents of $1,790,000. The company believed that its cash and cash equivalents on hand, together with cash flows from operations, and amounts available under the credit facilities will be sufficient to meet its working capital and capital expenditure requirements for this and the next year.
Even some mid cap companies can not sustain such kind of liquidity.
3, PDEX substantially reduced labor costs and actively carried out other cost savings plans in last year, as a result, the Company’s net debt (total debt less cash) decreased to $1.3 million at December 31, 2009, down from $2.2 million at June 30, 2009 and down from $3.9 million at December 31, 2008.
PDEX expects to continue this cost cutting strategy in the new fiscal year according to its last earning report and I believe that the company’s financials and the stock price will benefit from this too.
Although the current price of PDEX does not comply with the minimum $1.00 bid price requirement, it had requested an oral hearing before a NASDAQ Listing Qualification Panel, which automatically stays the delisting of its common stock pending the issuance of the Panel’s decision after the hearing. Under the Listing Rules, the Panel may, in its discretion, determine to continue the listing of PDEX’s common stock for a maximum of 180 calendar days from the date of the Staff’s notification to the company, which would be through July 9, 2010.
There can be no assurances that the Panel will do so, however, those companies which are financially sound and profitable have high possibility to get 6 months grace period according to the past experience, and I also believe that short-term and long-term catalysts can lift the company’s stock price above the minimum bid price.
Short-term catalysts and Long-term catalysts of PDEX:
1, we have heard so many big earth quakes what happened in other part of the world this year, and PDEX’s cutting-edge medical devices used for surgery can be very helpful for people who suffered from the disasters.
For example, PDEX pioneered the first miniature air motors for surgical procedures, and later the company expanded that technology to develop a broad base of powered products for use in the dental and medical markets, as well as aerospace and military applications.
Once PDEX gets big orders from those potential markets, its stock price will skyrocket for sure.
2, from this month on, PDEX will attend a series of academic conference and expos:
American Academy of Orthopedic Surgeons
New Orleans, LA March 10 – 13, 2010
OMTEC 2010
Chicago, IL June 16-17, 2010
FIME 2010
Miami Beach, FL August 11 – 13, 2010
OMTEC 2010 and FIME 2010 are both the industry’s major expo, and they are good opportunities for PDEX to look for new customers. We expect some big deals to trigger a nice rally of PDEX’s stock price.
PDEX is currently attending the American Academy of Orthopedic Surgeons conference. This is a pageant of the industry. When natural disasters get investors attention in this field, academic conference can become a good business opportunity. And once PDEX stay in the spotlight, it definitely will arouse investors’ interests, and I believe that its stock price also will benefit from this.
From any point of view, 53 cents, the current share price of PDEX, is grossly undervalued.
*Disclaimer: The author of this post is not a licensed analyst and the purpose of it is for information sharing and discussion only, not recommendation for any stock buying and selling activity. Please do your own decent research before making any trading decision
