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1. It appears that the "good 'ol days" are back.
If you don't know what this means try pulling up a price graph of DHB between April 11 and October 31st of last year at smartmoney.com. Drops like these almost became routine. My timing was off a bit, but this drop was the sort of thing I was a worried about after the gap up...so much for the "runaway gap" theory. Not that the gap has filled, but it hasn't exactly runaway either.
2. CC Q&A
I still haven't listened to the CC yet but have seen the rough transcripts of the Q&A session thanks to some other posters. I think one thing notable is [in] this exchange:
Andrew Scurawitz, B of A
Andrew: The other gentlemen just ask my question, but I want to say keep up the great work, thank you.
Group: Thank you.
Chris Jackson, Horsetown Bank
Chris: Hi folks, great job on a great quarter, I've couple of questions you may or may not be able to answer, at this point with your stock starting to get some more coverage and more folks becoming interested, do you have any plans in the book for new share issuance or anything like that to throw off the progress in EPS that you have achieved?
David: At this point we have no plans for any issuance of shares.
Chris: Following it up, have you issued any 2005 guidance, or what's your policy on [how] far you project on what kind of net sales and income you might have?
David: No, we are staying with 2004 right now. Customer's needs are changing rapidly and having to change are lines for what they need, therefore we are going to stay with a number we feel comfortable with our 300mil for 2004 guidance. Perhaps at the end of the next quarter, we will go into 2005.
Chris: Great, thanks for taking my questions and once again great job.
Interpretation: No. We are not issuing more shares. I have no intention of selling mine. If any institutions want shares then they'll have to see what they can shake from the retail investor who maybe doesn't realize the future value of their shares. As you have noticed our top line growth has hit bottom-line EPS for two consecutive quarters. We have no intention of doing anything to throw that progress off-track now. It's a bit too early to talk about 2005 projections. The D.A.P.S contract previously announced changed the nature of the company. Any additional contract announcements, particularly with regard to the Interceptor contract, will also greatly affect the company. We are waiting to see what the level of commitment from the U.S. military will be at this time.
3. The Drop.
Well I think that #2 help set the scene for what we saw on Friday. Some institutions were looking for an opportunity to accumulate. The jobs data on Friday provided that opportunity. The baby was thrown out with the bathwater, as the jobs data is largely irrelevant to this stock. The company has added over 200 jobs in the last year and the demographics of the main user of the product is increasing in number. What isn't irrelevant is the knowledge that the common investor could be shaken. After all, more than a few posters in other forums had already shown their hand by bringing up the topic of margin. The last time I did I was almost shaken out for a while...and I won't be repeating that mistake any time soon. It's a dangerous world and message boards aren't just readable by the common investor don't you know. Also, there is no honor amongst thieves. Many hybrid longs (trader-longs) own DHB. If I were home on Friday and had seen what was happening I probably would have thrown in my trading shares as well.
Despite this red flag, in the past couple of weeks I myself had begun accumulating shares though not as aggressively as in the past. I decided to go 50-50 and had planned to accumulate more on Friday morning except for this other little thing: I noticed BofA wasn't listed as an institutional holder at the NASDAQ website. Between the comments made by the analysts at the CC and this I thought there was little doubt that BofA (or some other institutions) would want to accumulate shares. This isn't to imply that BofA was the cause, but is definitely one of probably several institutions that have taken an increased interest in this stock.
I also think the previously mentioned comment about the gap and setting the stop loss at 14 contributed to the drop. It was an interesting comment made at an interesting time (I found it as interesting as the one Mr. Cramer made about TASR a few weeks back- Get to Know the Holders' Hands, Part 2). I would bet that more than a few investors set a stop loss above that price after reading that comment.
The Specialist ran the stops. Momo's that were previously "long" evaporated or are now reluctant longs. Previous longs, as a whole, lacked the conviction or the resources to push the stock price back up and institutions accumulated. Not a bad situation in the long run, current brokerage account values set aside.
4. Institutional ownership.
The last time I looked at the institutional holding percentage prior to the CC it was about at 25%. At one time it had risen slightly past 26% but then backed off. Today it shows the percentage as 28.2%, so that's a difference of about 3%. 3% represents about 1.2 million shares. For me and you, the common investor, that means that there is about a 10% decrease in the effective float if you believe that any institution that has seen the last quarter's results would not be selling now.
If you haven't checked out the Nasdaq website to see which holders are increasing and decreasing their positions I think you ought to: http://tinyurl.com/56fsz
For now though, we know that institutions want our shares. I wouldn't be surprised to see institutional ownership go up to 35-40%.
5. Where do we go from here? What to do?
I'll be buying more shares going forward, but I'm not exactly impatient about doing so...but again, I don't think there is not much time before the contract is announced. If you are a true long then I don't think you let the drop bother you - let the traders trade. Those who were really stung the worst here were the last minute momo traders on the long side who don't know what they own and/or basically dislike the notion of holding any position for weeks at a time because it takes them out of their normal trading routine. Volatility is alive-and-well as those who received margin calls may be forced to cover. I think most people in this position who don't dabble in options tend to harvest their already established winners rather than their more recently established positions...and DHB has been a huge winner this year. There are others who routinely set an 8% stop-loss, but that is much too small a margin for this stock. Those who were stopped out will have to make a decision as to whether they will repurchase. I think a number of those investors will, given DHB's results.
It is still early in the game:
at this point with your stock STARTING to get some more coverage and more folks BECOMING interested
If you are a long, stay long. If you have kept some powder dry consider dollar cost averaging.
And as I have written on other boards:
Make no doubt, the investor who dollar cost averages and/or is a long-term holder represents a threat to the trader and the short (including hedge fund managers). It is to their advantage at certain times to "talk down" the perceived value of your shares.
Take a little time to see the progress. In the past when drops like this happened the conversation usually switched back to blaming management. This time, I think it's pretty clear that DHB (the company) didn't disappoint. The fundamentals are strong.
Body armor is a political issue. My bet is that the contract we've been talking about for months is going to get dropped before the next convention. That doesn't leave much time for the shake out. Is it over or is this just the beginning? I don't know, but whoever is shaking (including the home traders that threw in their chips because they knew they could repurchase cheaper) can just keep on shaking. 20-30-40% drop? Sure. I don't care. Shake away. No stops for me. I think awoltoday has it right.
6. Bulletproof and Ready for Terror:
I thought this was about as bullish as can be. I'd just comment:
"...DHB's biggest customers may just be its worst enemies"
The government is not one of DHB's "worst enemies". No way, no how. This is just not true.
At today's $14.80, the stock trades at 25 times 2004 earnings.
There are at least 1150 companies that currently trade with a P/E greater than 25; something to keep in mind when DHB reaches $14.80 again.
Worse, it trades at 32 times 2005 estimates.
Analyst estimates are somewhat blinded without guidance from the company. No guidance has been given by the company.
7. This is a great stock. Future Foolish 8. Attractive to IBD's and NAIC's
A few thoughts for now but I am out of time,
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