PNS new position

I have taken a smallish position in PNS over the last week or two. The stock looks attractive to me in the current price range for a few reasons

PNS has 2 business lines. First they are a contract manufacturer for OEM's. The second line of business is in service and repair of equipment.

PNS earned .10 last quarter against what is right now a 2.48 share price. As I see the narrative for this company they went from a company where the former CFO took over for the CEO and the CEO stayed on as chairman. My view is that the CEO was good at either selling or technology and under his direction the company grew revenues substantially but they were not able to flow those earnings to the bottom line.

Since the CFO has assumed the CEO role sales have dropped but margins have expanded significantly as they have taken on more profitable business and turned away the lower margin stuff.

Now that profitability has been established I believe you will see some growth but that you will see it at higher margin levels and hence with greater profitability.

Per the companies conference calls backlog has grown from 13 million in December to over 18 million currently so while sales have been weak backlog has been growing implying eventually one has to catch up with the other. In addition they have an acquisition pending of their partner in the netherlands that should help the bottom line. Finally margins on the service side have been unusually low as they ramp up projects. The company has suggested they can return to more normal margins on the service side in the future.

All of that sounds like a recipe for earnings growth. The only question is can they maintain their margins on the product side. That is a legitimate concern as their margins there are considerably higher than one would expect in their niche. Still those margins have been growing so it is perfectly plausible that they maintain margins in one business line while growing them in the other all while growing their revenues.

At 2.48 a share it is already trading at a rather low PE which provides some margin of safety even if the business does not do as well as I am hoping.

I will have another short writeup on another new position later in the week. Unfortunately due to either good or bad timing depending on how you look at it the price started exploding this morning just as I was starting to create a position.

There is nothing more infuriating than spending time researching a company only to have it run away from you just as you decide to buy in.