No need to panic over 'fiscal cliff' deadline

We're headed into the second week of December, and no compromise has been reached yet regarding the impending "fiscal cliff." I hope you're not surprised by this, and not just because of politics, but because of Negotiations 101.

Both sides are trying to get something from the other side. I don’t care if it is a negotiation for labor or a dispute over a contract, you would never give in way before a deadline, as it would be foolish to give up your position early.

The stock market has finally recognized this and is not moving up or down with every positive or negative sound bite that comes out. Some agreement will be reached sometime in the near future, but in the meantime, businesses will not fold. What they will do is wait for the outcome to see how they will work with the new plan.

I received a request from Sam, who has been following me for years. He said he has learned a lot, is applying his new wisdom and has picked a stock with the symbol GASS — StealthGas.

Sam, first off, StealthGas is a rather small company. Current market cap is only $153 million, and only three analysts are following this company when looking at December 2013 earnings. I generally like to see at least five analysts following a company to make sure I am getting a good average from the analysts.

If you proceed with this company, you should be looking closely at the financial statements and reading in depth all the information on the company each quarter, including the conference call.

Sam, you also pointed out that the PE is only 6, which is a good PE ratio. However, I always say to make sure you understand why the PE is so low. What also caught my eye was that sales were down 0.8 percent, yet earnings per share were up 210 percent — I knew something wasn’t right.

I reviewed the last eight income statements and, sure enough, buried in 2011 2Q was an unusual expense charge of $5.7 million. It consisted of a $2.6 million charge of asset impairment and another $3.1 million loss on the sale of assets.

What this did is throw off all the numbers, and one can get an artificially low PE that will go up dramatically the following year. What this did to the company was lower the previous 12-month EPS from the current 12 months, making it appear that the company's earnings per share are growing rapidly, which as you can see, is not the case. In this case, the effect on the PE is not that dramatic from what I can see, but the effect on EPS growth is greatly distorted.

The financial strength of the company is on the weak side with a current ratio of 0.9, well below the industry average of 1.4. The company could experience a liquidity problem if things get much worse for it. While it is in a high-debt industry that, on average, has a debt-to-equity of 156.4 compared with the company at 105.7, I still feel uneasy holding a company with that much debt on its balance sheet. Maybe I’m too conservative, but I know what debt can do to a company in slow times.

Return on equity is also low at 8.0, which is above the industry average of 6.5, but I prefer to invest in companies with an ROE of around 15 percent. Return on capital is worse for the company because it includes the debt at only 2.94 percent over the last 12 months. The net profit margin looks good for the company at 21.8 percent, well above the industry at 8.3 percent.

The company is doing a great job turning over its receivables at a rate of 41.3 over the last 12 months, well above the industry average of 9.2. Inventory turnover also looked good at 15.4 times, slightly better than the industry at 14.4 times.

As I stated earlier, there are only three analysts following the company, and they give the company a mean EPS estimate of $1.49 for the year ending December 2013. The high estimate is $1.70 and the low is $1.34. Using the mean of $1.49 would yield a selling price target of $24.59, significantly above the current price around $7.50. Over the last four quarters, the company has missed the estimate three out of four times. The worst was last quarter with a 24 percent miss.

Sam, this company has some good and some bad fundamentals. I would recommend that if you're going to hold this company, you do a lot more research to make sure you understand it inside and out, or your gem of a company could turn into a falling rock.

Have a question or a company you'd like me to take a look at? Email me at

Wilsey is president of Wilsey Asset Management and can be heard every Saturday at 8 a.m. on KFMB AM760. Information is provided by Reuters.

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