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Time to Take Advantage of Discount on Flat-Panel TV Maker
By Michael Brush
Exclusively for InvestorIdeas.com
December 13, 2007
Flat-panel TVs are once again the hot ticket item this holiday season. They are flying off the shelves.
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So why are the shares of Syntax-Brillian (BRLC), one of the top producers of these popular consumer electronics devices for the U.S. market, trading down 60% since early September?
You can blame it on any number of mishaps in the past four months: The credit crunch, an overhaul of the business model, downward guidance. There’s also an overhang of shares to be sold by investors who funded the company earlier on.
But now, down here at $2.75 a share, the stock is starting to look temptingly cheap. The company’s shares trade for below book value. And they sell for just .33 times sales, or well below the industry average of over two times sales, according to Reuters.
Despite what the cheap valuation is telling us, Syntax-Brillian’s Olevia line of LCD TVs are still popular.
And insiders are confirming the stock is a decent value now, in a big way. Since the middle of November, they’ve plowed $2.5 million into the stock – a vote of confidence even if most of that buying came from one director and a new finance chief.
Let’s take a closer look at why this stock has blown up, and why it might come back to life.
One company, too many mishaps
Syntax-Brillian designs and sells high-definition televisions (HDTVs) that use liquid crystal display (LCD) technology. The company is based in Arizona so it uses a “virtual manufacturing model,” sourcing components and contract manufacturers in Asia. Syntax-Brillian also bought the digital and film camera maker Vivitar in November 2006.
At least four things have contributed to the pummeling of Syntax-Brillian shares since September.
- The dreaded credit crunch. Back in mid-September, Syntax-Brillian shares slid more than 30% in a day when it slashed fourth quarter sales expectations to $170 million-$180 million, well below analysts’ expectations of $256.6 million. Syntax-Brillian blamed the weaker guidance on the credit crunch, saying that financing was increasingly scarce for Asian suppliers, which hurt production.
- A new royalty model. Syntax-Brillian more recently announced it is transitioning to a new, royalty-based business model for its Chinese TV sales. Under the old system, the company sold TVs to a distributor for resale to retailers. Under the new system, Syntax-Brillian will license its brand name to a distributor which will look after manufacturing and distributing itself, in exchange for a royalty paid to Syntax-Brillian. The bad news is this contributes to a decline in Syntax-Brillian sales to $155 million-$175 million in the current quarter, well below previous projections of $303 million by analysts. The good news is royalty revenue will carry a higher profit margin, and if you didn’t own Syntax-Brillian before you can buy them now that the bad news is priced in.
- A management shake up. In early October, the company went through a management shake up the likes of which tends to spook investors. Its finance chief resigned and another one, John Hodgson, took over. Hodgson was a board member and served as the chair of the company’s audit committee. The company also appointed James Li to become chief executive. He kept his role as president. That’s the kind of a management shakeup that can prey on investor confidence. It has.
- A troubling overhang. Regulators recently approved the sale of nearly seven million shares of Syntax-Brillian by investors. Syntax-Brillian will get none of the funds. The sales represent nearly 10% of the float. Ouch.
Sales trends have been great
That’s a heap of negatives to pile on a stock in just four months. No wonder it has been pummeled. But the cloud of negativity overshadows one important fact about Syntax-Brillian.
Consumers like their product.
Excluding gains from the recently-purchased Vivitar division, sales were up 54.3% to $134.2 million in the quarter ending September 30. Virtually all of those sales – and the impressive increase – were LCD HDTV sales.
What’s more, the percentage of sales coming from North America increased to 82% from 45% the year before, because the company began selling through more major consumer electronic and consumer goods retail chains.
What does that tell us? It says consumers – and retailers -- like the company’s Olevia brand of HDTV.
The bottom line: If Syntax-Brillian continues to have a popular product – which seems to be the case – the impact of the barrage of mishaps should begin to wear off at some point. The insiders are telling us as much with their mega-purchases. That bullish signal, plus the dirt cheap valuation, suggests Syntax-Brillian may be a stock to add to your portfolio now.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site. For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner:
http://www.investorideas.com/insiderscorner/. InvestorIdeas.com Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
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