Score one for the treasure hunters of Tom Gardner's Motley Fool Hidden Gems. Back in January, community member Daniel Hong profiledInVision Technologies (NASDAQ:INVN), a leading manufacturer of explosives-detection equipment for passenger-cargo screening in airports. He argued that it possessed several characteristics that made it worth a close look despite its predicted 25% decrease in revenues for 2004.
Among the reasons: 1) a lock on the current market; 2) good potential for new explosives-detection applications, such as cargo screening; 3) continuous-revenue service contracts in a security-obsessed world; and 4) high insider and low institutional ownership. Best of all, the firm was already producing substantial free cash flow.
It looks like General Electric (NYSE:GE) agreed. The company announced this morning that it would be adding InVision to its ever-expanding stable of businesses. For their part, InVision investors woke up to a nice treat. The stock rose 20% to reach the roughly $50 per share that GE will be shelling out for the privilege of taking a lead in the homeland-security market over defense rivals Lockheed Martin (NYSE:LMT) and Northrop Grumman (NYSE:NOC).
The buyout price represents a near 35% gain over InVision's $37 per stub when we checked it out last January. That's a phenomenal return in two months, to be sure. But it also hints at the heartbreak that can accompany successful small-cap investing. Who knows what InVision stock might have been worth a couple years from now had GE not gobbled it up?
But I won't be shedding too many tears for the InVision investors. Given the pounding that other successful small caps have been enduring over the past couple weeks, many of us would opt for the misfortune of a premium buyout.
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Fool contributor Seth Jayson has seen InVision's machines about 20 times in the past month, but wasn't clever enough to buy the stock. He owns no stake in any company mentioned above. View his Fool profile here.
