Taking a Bath in This Bull vs Bear Market? Maybe We Need Some SOAP

Wednesday, July 09, 2008 | | 5 comments »









Bull vs Bear


I tweaked one of my favorite screens looking for a good company, not necessarily a Net-Net. The screen had the following criteria.
Last EPS Surprise (%) > 5
P/E (Trailing 12 Months) < 1.3
Current ROE (TTM) > 20
Current ROI (TTM) > 20
Price/Book < .8

Just one company came up. Soapstone Networks (SOAP) with a mind boggling trailing twelve month ROE of 60% and ROI of 60%, 38% positive EPS surprise, PE of 1, price/book .53.

SOAP generates gobs of free cash flow, $56 million in 2007 up 270% from $15 million in 2006.
As of May 2, 2008, there were 14,820,752 shares outstanding. With $96,417,000 in cash on the balance sheet at the end of March 31st there is $6.50 per share in cash, $7.05 including liquid marketable securities and net current assets per share of $6.80. This stock last traded for $3.78! Cash on the balance sheet has been increasing every quarter since June 2007 when they only had $32 million in cash on their books.

This is definitely a deep value stock like Heelys and major contrarian play if one was to pick some up here. It may be a good opportunity if they can turn the revenue around in these next few quarters. The balance sheet is stellar.

full disclosure: no position

5 comments

  1. Dennis Mangan // July 10, 2008 11:55 AM

    So why the deep discount?

  2. Mark Perkins // July 10, 2008 11:12 PM

    AT&T was 94% of their revenue in 2005 and 2006 and still is a big chunk..I'm not sure if their new product is going to be very good. The company is making a big transition here. Though, if it goes well there could be a lot of upside with this valuation. The business looks really cyclical. The stock has been incredibly volatile over the past 5 years. The stock was over $20 in 2004 , fell down to just over $3 by the end of 2005 and was up to $13 mid last year and here we are again.


    "In April 2007, Avici announced its transition away from core router development and product sales to focus on Soapstone. Avici completed the final shipments of its core router products in the fourth quarter of 2007. Avici will continue to service its router products deployed by existing customers under existing contracts that are in place. Avici no longer actively develops or sells core router products, and we are no longer resourced to manufacture our core router products. Accordingly, Avici does not anticipate product revenue from core router sales in 2008." 10k mar 08

    "Since our inception, we have incurred significant losses. As of December 31, 2007, we had an accumulated deficit of $383.5 million. Although we recorded net income in 2006 and 2007, we will not be able to sustain this profitability in 2008 as a result of our transition away from core router development and product sales. In particular, we expect that 2008 will be a year of continued transition, as we continue to invest in Soapstone, with the objective of commercial introduction during the year, and continue to provide maintenance and other services under our existing core router customer contracts. Given the early stage of our Soapstone products, we expect quarterly losses and negative cash flow in the near term and there can be no assurance that we will generate meaningful revenue or achieve profitability through our Soapstone products once introduced.

  3. Mark Perkins // July 10, 2008 11:14 PM

    they changed their name from Avici to Soapstone this year

  4. Mark Perkins // July 13, 2008 8:29 PM

    they will probably burn through a lot of cash for awhile so the discount may be justified. It's worth watching.

  5. Michael Goode // July 14, 2008 9:19 AM

    I bought some last Thursday, sold a bit on the bounce Friday. I may buy or sell more. 10% below the current price, where I bought, I figured that at their current cash burn rate it would take them 2 years for their cash/share to be less than that stock price. Risk reward still looks pretty attractive to me, but I would be a seller on bounces.

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