Please ensure Javascript is enabled for purposes of website accessibility

Applied Signal's Price Is Just Not Right

By Chris Jones - Updated Apr 5, 2017 at 7:55PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Financials are good and the future looks bright, but the price is too high.

Those under the influence of Orwellian satire might choose to believe that Applied Signal (NASDAQ:APSG) is merely an instrument of totalitarian regimes used to control their populaces. Granted, it was founded in 1984, but it's more likely that Applied's products go toward preventing catastrophes and making the world more secure for civilians and those serving in the armed forces.

This small-cap defense outfit supplies the military and intelligence communities with the technology they need to remain, well, intelligent. Its products have applications ranging from communications and weapons systems detection to location of hidden explosives. It recently finished its fiscal 2008 with record high revenues, which potentially makes it a beacon of hope amid an economy in the dark. But is it enough?

When it announced its fourth-quarter and fiscal 2008 financial results last week, the public learned that Applied's yearly sales were a record $186.3 million -- up 9.4% from 2007. Operating margin, a measure of management's efficiency, hardly budged from last year, though earnings per share increased 14.5% to $0.63. More interestingly, it added 100 people to its staff, and announced intentions to add more in fiscal 2009.

Furthermore, management said that over the next several years, the government will need to upgrade existing signals intelligence equipment with new technology, which would provide Applied with an intravenous drip of taxpayer money.

Foolish takeaway
On the whole, it was a promising report of financial results, and there are plenty of good things to say on Applied's behalf. It's a slow and steady revenue grower that sports a 3% dividend yield. It differentiates itself from competitors like Argon ST (NASDAQ:STST) and L-3 Communications (NYSE:LLL) by focusing on providing superior value and customer service. I've always believed that the bitterness created by poor quality and service lingers long after the sweetness of low price is forgotten, so I was practically sold.

Then I saw it. Within an arm's reach of its 52-week high, its shares were trading more than 26 times its trailing earnings per share. Thanks, but no thanks. I've got nothing but love for Applied, but I must respectfully decline it an invite into my portfolio -- for now. Things could change down the road, so it's going on my watch list while I keep hunting.

More Foolishness:

Chris Jones does not own shares in any of the companies mentioned. The Motley Fool's disclosure policy reads like a Robert Ludlum novel.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

L3 Technologies, Inc. Stock Quote
L3 Technologies, Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/10/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.