MicroTouch Systems Inc.
Price (12/19/97): $16 5/16
HOW DID IT FIND TROUBLE?
You can put a finger on a MicroTouch computer touchscreen, but can you put
a finger on what went wrong for the company? The stock was tapping $35 a
share over the summer and the news was good -- record earnings, record sales
-- the very essence of user-friendly computers was alive and well.
And even now, the fundamentals have not crumbled significantly. There are
concerns over how a company with 17% of its sales coming from the Pacific
Rim will fare in the Asian monetary crisis. One of the company's newest products,
an electronic whiteboard called Ibid, has not lived up to expectations, and
the company will take a $2 million charge in the current quarter to compensate
for the lower projections.
Why are minor mishaps causing a major tumble? On Dec. 12, the stock lost
$7 on the news that Chairman James Logan had sold 7,500 shares. Should a
company forfeit more than $50 million in capitalization on the news that
a distant insider was cashing out on $150,000 worth of company stock? Logan
had stepped down as CEO last year and since that time has sold 250,000 shares
of MicroTouch stock to fund a new business.
MicroTouch's flagship product is its touchscreen monitor systems.
While not practical for present-day computing, the technology has found a
home in many sectors. Restaurants use MicroTouch screens, as do hospitals
and retail stores. The company also has applications for video poker and
blackjack. Major companies like IBM and Hewlett-Packard are big clients.
The company also owns Factura, the largest maker of
kiosks, and Prospector, a stand-alone
touchscreen Internet access system, which the company developed with browser
featherweight Spyglass (Nasdaq: SPYG). The newest product, Ibid, a
drawing tablet where whatever is written on the whiteboard is saved, retails
12-month sales: $122.2 million
12-month income: $8.3 million
12-month EPS: $1.01
Profit Margin: 6.8%
Market Cap: $137 million
Cash: $30.9 million
Current Assets: $80.5 million
Current Liabilities: $17.5 million
Long-term Debt: None
HOW COULD YOU HAVE SEEN IT COMING?
If this was Logan's Run, film buffs would be quick to compare the
stock price to that movie's carousel -- every time the stock gets past $30,
it blows to bits. It happened in 1995 and it happened again over the last
But this is not about ritualistic superstition, this is a company with a
great story that occasionally falls on deaf ears. Back in 1995 it was a fall-off
in orders to IBM. The company bounced back. The relationship with IBM grew
stronger, MicroTouch had touchscreen kiosks all over the Olympics in Atlanta
last year, and the company was hitting all the right buttons.
MicroTouch has reported eight consecutive quarters of sequential increases
in both sales and operating earnings. But the streak is in jeopardy as the
company now expects results for the current quarter to be comparable to last
year's final quarter -- before considering any of the ramifications of the
Asian-based currency fluctuations.
Chairman Logan's selling had been perpetual and well documented for months.
If one figured that Wall Street would see the day where 7500 more shares
sold by the former CEO would cause a nasty one-day plunge, then the warning
was there in the SEC filings.
Yet that could not have been reason alone. Brokerage firm Adams Harkness
downgraded the company that same day, and it seems that many investors chose
to see things as Logan did and found a new opportunity for their capital.
WHERE TO FROM HERE?
Despite the recent debacle, there is a lot to like in MicroTouch. Book value
is $10 a share, with no debt and $4 a share in cash. That is why, as dire
as prospects looked in 1995, the stock bottomed out about where it is today.
The company knows it and announced a share buyback this last week -- just
as it did back in 1995.
If the downside is limited, as long as the company sustains profitability
what is the upside? MicroTouch's products have sex appeal. Its Internet surfing
kiosks, designed to help companies give access to their Web pages to the
non-wired public, have the same open-ended potential as its mainstream
Even if it never replaces traditional home computing, the uses in commerce
have been validated. Now if shareholders can only find that sanctuary they
keep hearing about.
-Rick Aristotle Munarriz
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