Thursday, January 15, 2009

Buy of 50 National Dentex (NADX)

I finally reached a compromise with the warring factions in my head at around 2:45. I was allowed to start buying some small caps with my cash flow, but not all at once. The really boring conservative, and dominant part, said no to every idea generated by the wild and crazy guy. But in the end, the moderate faction reached a compromise allowing me to ease into it more gradually. Then the wild and crazy guy went totally off the reservation and bought 50 National Dentex (NADX) at 4. NADX

It closed at 3.90 and traded down to 3.59 during the day. It owns 43 dental laboratories scattered in 31 states plus 5 branch laboratories. It manufactures crowns, dentures, bridges and other dental prosthetic devices.

First, I will make the bear case which is pretty convincing and has kept me out of the stock until today. There is nothing favorable to say about the technicals. The stock was near 20 in July 2007 and meandered down to around 12 a year later, when it just went into a nose dive to its current price. Earnings still exist but have been trending down.

The last quarter saw another increase in revenues and a decrease in earnings per share to $.14 from $.23. Management is acquisitive and has built up a good sized debt load for this small company. Debt currently exceeds market cap. It appears to me that management is more intent on creating growth through acquisitions rather than earnings growth from existing operations, putting acquisitions on hold would be my preference until improvements are made in what the company already owns but this is not the likely course for the managers of this small company. I read an earlier earning's release where management was trying to blame material costs for an earnings shortfall. As far as I can tell, only one analyst follows the company. I would also expect that elective dental procedures would be put on hold due to the recession.

On the positive side, I will mention the debt first since it is my most major concern. The company did receive an extension of its credit line.

So what caused me to buy it now? The company has a market cap now of just 22 million but generated in 2007 revenue of 170.361 million. NADX: Income Statement Quarterly revenues for the first nine months of 2008 were 130.41 so I would expect the company will just about beat last year's revenue number. Anyone can do this calculation but that puts the price to sales number at around .14 and the price to book is at .25. NADX: Key Statistics The forward P/E is a tad over 3. While elective procedures may be postponed, many can not and many patients have dental insurance, with many policies allowing a cap a year for example. With the aging of the population, this kind of work is likely to be in demand as the baby boomers age. So, as I said, I went off the reservation today but it does make a little sense to me.

The small cap that I wanted to buy jumped on me near the close. I entered a GTC limit order below the market on another. I intend to make about three or four buys with the monies received today and to keep some in reserve.

I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator. I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine. Any discussion made by me of particular securities is not a recommendation to buy or to sell. Trade at your own risk. Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons. The sale may before or after the post. Before buying or selling any stock, even one recommended by a trusted financial advisor, please research it and make up your own mind which is what I always try to do. Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news. In this post, and all others by me, I am merely describing my reasons for purchasing or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale. The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments. Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed. These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities. All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me.

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