DAC Earnings Up 55%, Stock… Down 13%

DAC Earnings Up 55%, Stock… Down 13% post image

DAC Technologies (DAAT – $0.65), that sells gun cleaning kits, gun safety items and various hardware products, announced that its fiscal year 2009 net income increased by $196,861 or 55% compared with last year. Nevertheless, the stock ended down 13% for the day. Want to know the full story, read on.

Fourth Quarter and Full Year 2009 Results

Net sales for the year ended December 31, 2009 were $14.68 million, compared to $17.04 million in the same period in 2008, a decrease of 14%. This decrease wasn’t a surprise, as the Company, in 2009, discontinued selling fireplace equipment and game processing items on which they made little or no money. Instead, management concentrated on higher margin products like gun cleaning and gun safety asseccories. As a results, gross margins increased from 22% in 2008 to 28% in 2009.

Net income for 2009 was $553,555, or $.10 per share, compared to $356,694, or $.06 per share, in the comparable period last year, an increase of 55%. The earnings increase can be attributed to the concentration on higher margin products.

Expectations

Although earnings were up significantly, a sell-off took place when the results were announced on Thursday. Almost 10% of total shares outstanding changed hands, driving the stock down 13% to 61 cents. The only reason we can come up with why this happened, is that management had projected earnings to come in between 12 and 14 cents per share, while they only made 10 cents.

So, are we disappointed they didn’t make 12 cents? Sure we are. But are we going to dump the shares just because the Company didn’t meet its expectations? Of course not. As always, after every announced or event we analyze the situation and take a look at the entire picture. In this case, we see a Company with increasing earnings who’s shares trade at a ridiculously low P/E of 6.8.

We’ll comment on the Company’s balance sheet after the 10-K has been filed. But looking at these result we expect to see the same solid balance as before.

Outlook

Management didn’t give any guidance for fiscal year 2010. The only thing Mr. Collins, DAC’s Chairman and CEO, did say was that they’re looking forward to a good 2010 as new products are sold to most of its customers.

There aren’t many stocks out there with a P/E of 6.8 without one-time items in their earnings. We’re convinced long term investors will be rewarded as the true value of the stock emerges.

For important disclosures, please read our disclaimer.
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