Tuesday, November 4, 2008

Hemisphere GPS Reports


In its press release, Hemisphere GPS (TSX: HEM.TO) reports that its Q3 revenue grew 46% year-over-year, and its gross margins increased to 52%. Expenses increased 46% year-over-year as well (partly due to the acquisition of Beeline), and the company posted a loss of about $233,000 for the quarter (the loss would have been about twice that if it weren't for Hemisphere's foreign exchange gains).

On the Value Investors Club, Edelheit quotes these bullet points from Canaccord,

1) Revenues USD$13.2M up 46% yr/yr, Gross profit margins 51.6% and EPS (0.00) was better than consensus 12.6M GPM 48% EPS -0.01 (our forecasts 13.2M, GPM 50% /-0.01)
2) Company maintained FY guidance of revenue growth of greater than 45% (we believe mgnt will likely increase its FY guidance to better than 50% on the 11:00am CC)
3) Gross profit margins big positive surprise at 51.6% (slowest qtr of the yr) up 500 bps yr/yr, this should support current forward estimates if not cause some EPS estimates to increase in 2009 (street is 0.25-0.30 USD in FY2009)
4) FX trend of weakening cdn$ is positive for HEM margins (substantial cdn based operating costs), these margins were realized against a cdn$/USD$ spot of 1.06 (obviously we are at 1.18 now)
5) No signs of AG related slowdown
6) At C$1.70 share stock HEM has 20.5M in cash or 0.37/share, is trading at 4.4X 2009 EPS , growth rates in excess of 50% (and company now benefiting from favourably FX trends)
7) Company bought back 181,00 shares in Q3 @ 2.46/share


Edelheit then comments,

Why the heck is this at $1.70? Seriously, this is one of the most ridiculous malfunctions of the market that I`ve ever seen. 46% revenue growth, much better than expected margins and the stock is at 4.4X earnings?


Of course, Hemisphere isn't trading at 4.4x trailing earnings, but at 4.4x estimated 2009 earnings. If Hemisphere actually meets those earnings estimates, I'd expect it will trade at a higher multiple.

The photo above comes from the Hemisphere GPS website.

3 comments:

B. Obama said...

Higher revenues- yet more losses.

Hope conquers logic.

Albert said...

Do you own HEM on the TSE itself, or did you purchase it via the pink sheets (ticker HEMGF)? Just looking into the stock, and I see that my broker doesn't offer a foreign trading desk.

DaveinHackensack said...

b. obama,

In general, the idea of buying a company before it becomes profitable (as Edelheit often does) is that you can pay less for those future earnings. In this market though, there are plenty of stocks with current earnings trading at single-digit multiples.

Albert,

I own it on the TSX. I bought it through a Scottrade account, and Scottrade lets you buy Canadian stocks on the TSX (though if memory serves, you have to do it by phone and pay a higher commission).