One of the risks in investing in a company with few customers is that if one of those customers delays making purchases, or even elopes with a new supplier, your investment could crumble faster than a stale cookie. When one of a company's few suppliers is the government -- whether federal, state, or local -- the company also has to deal with the whims and vagaries of ephemeral political support for the service or product.
Such seems to be the case with tiny Maryland-based TVI
Following the terrorist attacks of Sept. 11, 2001, politicians of every stripe were lining up shoulder-to-shoulder to see who could appear tougher on terrorism. A Cabinet-level Department of Homeland Security was created, funds were lavished on projects that had even a whisper of anti-terrorism surrounding them, and the photo-op possibilities were legion. A few years later, a war continues to grind out casualties, and funding for many projects is languishing. It also doesn't help that the government's own auditors found that only four of the 33 Homeland Security programs it examined were deemed "effective."
Since 2001, annual spending on Homeland Security's contracts has more than doubled to $5.8 billion, with the beneficiaries of such largesse being Unisys
In the second quarter, net sales declined by 26% to $7.6 million from $10.2 million, while earnings fell 39% to $1.1 million from $1.8 million. The company blames the uncertainty at the top for the slowdown in spending, and it doesn't see any improvement in the near future. Part of the problem is that the Federal Emergency Management Agency is shifting its focus from first-responder preparedness to disaster response and recovery. Furthermore, TVI is experiencing regulatory delays in its new filter canister manufacturing plant, though it has received approval from the military for its "technical proposal" and is moving ahead with the competitive bidding process.
Investors seeking to find interesting opportunities should consider the travails of companies like TVI. It exploded on the scene in the wake of the terrorist attacks, saw a sharp increase in demand for its products, and was able to gain a national market listing on the Nasdaq. Ever since, its performance has vacillated more than a politician running for re-election. Investors should know that government contracts are as fickle and changeable as the flavor of the month. At this juncture, TVI might want to look into pitching its tents with the camping crowd.