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Photon Control Inc.

Photon Control Inc. designs and manufactures a range of optical sensors and instruments to measure temperature, pressure, position, and flow. These products are used by original equipment manufacturers (OEM), as well as in the semiconductor, oil and gas, power, life science, and manufacturing industries. It also provides engineering services for customized optical measurement systems. Photon Control’s products include Optical Sensors, Spectroscopy, and Downhole Pressure and Temperature Sensors. Its Optical Sensors include positioning, and temperature sensors systems, fast-response Immersion probes, Contact probes, and Life Science probes. Its spectrometers facilitate measurements in the ultra-violet, visible and near-infrared wavelengths, ranging from chemical composition and quantification to color measurement and radiometry. Its Downhole Pressure and Temperature Sensors are for measuring pressure and temperature over long distances and at high temperatures.

chart

I remember years ago watching Mad Money with Jim Cramer and hearing Jim say, "there is nothing investors love more than accelerating revenue." What is accelerating revenue? It is increasing revenue at an increasing rate. I took some time this Sunday to look at the revenue growth of Photon control and have compiled the following charts. Firstly, let's take a look at quarterly revenue growth (as my girlfriend pointed out to me, I have time moving in the leftward direction on all these, but you get the idea):

quarrev

Probably the most notable thing about the above chart, is that we are starting to see quarterly revenue reach new levels. Now let's take a look at quarter over quarter revenue growth:

revoverrevgrowth

The charts show that we are just beginning to see revenue growth,  thus probably making an investor think the trend might not be moving a favourable direction. However, things get interesting when we look at the sales order backlog:

salesbacklog

I think it's clear the chart above indicates that revenue is beginning to accelerate since the fourth quarter of last year. In the most recent MD&A, management of Photon Control attributes the increase in sales to "increased market activity." Thus, if the only reason, this kind of gets into a greater discussion over whether or not market activity will continue to grow. The company doesn't get into much further detail.

In each of the MD&A, the company breaks down where they do their business:

map

I can't get much further into detail about their products, because I simply don't have the information. But I will try to update this page as I find out more.

Here's a few quick notes about the balance sheet:

  •  Overall strengthening balance sheet: more cash and increasing equity.
  •  Current Ratio of 5.88
  •  No Long Term Debt
  •  Recently increased line of operating credit from 500k to 1 million.
  •  Tangible Book Value of 14.27 million.
  •  Appear to be running a pretty lean operation.
  •  Company is initiating a share buyback.

Based on what I do understand about the business model, I have identified the following risks:

  •  Sales Risk:
    •  Technology Risk (can they continue to develop strong products)
    •  Selling Risk (can they continue to expand and maintain their customer base)
  •  Exchange Rate Risk (not that signficant)

Recommendation

I am giving this stock a buy recommendation and I believe this stock will continue to increase in value and have a one year target price of $0.50. I am not overly confident in this stock, because it might just be entering another peak in what appears to be a cycle, but then again there could be a break out. It is hard to assess, because the company doesn't go into great detail over why revenue is increasing. The reason I am comfortable with this recommendation is there appears to be strong growth, with a strong balance sheet, and a low PE Ratio.

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