YOUR HOMEWORK: ASVI

Well folks, Jason Hawkins has just pulled up what might turn out to be a very nice gold nugget.  Read his analysis (from 2 separate emails), then go to the bottom to see what I think.

Email #1:

Phil,

Let me give this stock evaluating thing a try.  I would appreciate your feedback.  I ran a Global Search using the InvestTools website and below was the criteria:

Phase 1 :  Minimum 5 green Arrows
Phase 2:  MG/Zacks min. 3.25
Price Pattern: min. 2.5
Volatility : min. 2.0

I figured a sticker price of $54.01 taking into account the 50% margin of safety.  The current stock price is $22.97.  (Did I do this right???) ASVI… The stock recently got the 3rd green arrow representing a buying signal.

Recent Volume exceed 1.5x average volume and Acc. Dist Curr. is above
60 at 62.  Taking a look at the industry chart it's not much, it's not
in a upward or downward trend, pretty much remaining flat.

Here is what I know about the company:

The owner is well know entrepreneur who has received numerous awards.
He was the founder of both Polaris and Artic Cat which combined sold
over a billion dollars.  ASV ranked 7th on Fortune Magazine's Fastest growing
companies.  Caterpillar currently owns 23% of ASV Inc.  The have a
remote control machine that was recently used by the military to cover
rough terrain and keep soldiers out of danger, this remote control
machine covers a 2 mile radius.  They just recently announced record sales and
earnings. The also have partnered with Citi Financial to offer
financing at the dealers.  This will provide easier methods for purchase and will also
allow dealers to make some additional back end dollars on the
financing. 

Looks like a good company, with good leadership and
product.  They seem to moving in the right direction. What are your
thoughts? Thanks in advance, Jason!

Jason H.

Email #2

Meaning:

This company provides rubber track loaders for all types of companies.  Their sales have been in an upward trend for 6 consecutive quarters.
ASV just extended there 5 year supply agreement with caterpillar.  ASV
is ranked 7th by fortune magazine as the fastest growing company in America, this
is up from the 25th spot in 2004.  ASV recently joined forces to supply
there rubber tracking to Vermeer a leading manufacturer in the
agricultural, construction and industrial equipment industries.  ASV has also joined
forces with Citi Group to offer financing options for there customers,
this will not only make it easier to purchase through financing but it
will also allow ASV opportunities to generate additional income through
financing.

Moat:

ASV offers a wide variety of rubber undercarriages for large
manufacturers like Caterpillar and Vermeer.  The also have there own
distribution channels of dealers all across the US, Canada, Australia,
New Zealand, and United Kingdom.  This rubber tracking design that they
have gives them something that is unique in the industry.  It has been
said to offer better traction then wheels or steel tracks and also
provides far less ground damage.  This is why they have really focused
in on golf course superintendents, to provide this rubber track
technology to the course with out damaging the surface.

Mgmnt:

The company was co-founded by Edgar Hetten who is know by the
snowmobile industry as the "Grandfather of Snowmobiling".  This tells
me that he was one of the pioneers of this industry, snowmobiles run on
a similar track. So it seems that he has taken his knowledge of
snowmobiles and adapted this knowledge into designing equipment that
service many industrial industries. Gary Lemke is the other co-founder
he brings a strong entrepreneurial background to the table, his
experience is in running an Artic Cat dealership.  He was successful in
developing his dealership into one of the largest dealership in the
US.  First impression is that Edgar Hetten brought the idea of the
rubber tracking to the table and turned to Gary Lemke to figure out how
they were going to sell this concept to the public.

MOS:

I figured a sticker price of $54.01.  I used the investools valuation
analysis (Projected Growth Rate:27.5 filled in already, discount rate
15%, and for projected P/E used 50 because you said to never exceed 50). It gave me an estimated target price of 108.02.  The current stock
price is $22.97.(Did I do this right???) It seems like a very good
value, the fundamentals and technical are there showing strong buy
signals.

The one thing that concerns me is that the industry is flat.  What are your thoughts?

My thoughts. OK. How about we go take a look at ASVI.

ASV is a supplier to Cat.
They've been doing a good job of making rubber tracks for Cat's big
equipment and they've been posting some very impressive numbers for
quite a long time.  The business is decent sized – $600 million market
cap (what the price is right now for the whole thing) and owned about
60% by the big guys and 30% by insiders.  Those are good number.  Kinda
small for the big guys but still they are in there. 

And here's what
Jason found: they are best of class in what they do.  You gotta love
that.  They are expanding overseas.  They are expanding away from Cat
as long as it doesn't compete with their partner.  And their numbers,
as I said, are good.  Better than good, really.  Their numbers make the
analysts' expectation of 27% growth look positively conservative.
Equity is growing at over 35% a year.  Get outta here!

Jason did the right thing and ignored the huge historical PE.  He put
on 50 which is less than historical and less than 2X the growth rate
because he knows that 50 is all he's going to get as a Rule #1
investor.  And still he got a Sticker of about $100 on a business that
is selling for about $20.  WOW!!!!  That big of a margin of safety
doesn't come along every day.

So gang, go listent to what these guys say on their latest chat with
the big guys.  Here's the web address:
http://www.asvi.com/investor_relations.cfm.

That's right – we get to listen too.  How cool is that!  Gotta LOVE the
internet!  Tell me what you think.  Is this thing a buy? 

Jason????  You gonna pull the trigger on this?  Maybe you ought to tell us who competes with these guys?

Now go play!

Phil Town