Friday, August 18, 2017

The ELST Boredom Might be Changing

Electronics Systems Technology (ELST) is another in my long line of small companies with potential.  What can I say other than it fits my style.  Clean balance sheet, low share count, good potential, cheap stock, low range on the chart.

Even if you don't agree on the cheapness you must recognize the story can change in a hurry.

ELST has evidence of change and potential.  That is all.  Quick post.

If a company is cheap I will buy and cheap to me is found pretty quickly in the financial statements.  Most of my buy decisions are made within a half hour of starting research.  When I'm faced with a decision between a few stocks I'll take the one undergoing change because that's what brings out stock price changes.

ELST makes wireless modems.  They are rugged devices for machine to machine communication.  I'm no expert but I think this field will only grow so the question is can they keep up with technology.

From the most recent 10k:
  • BV $2.5M in 2016 vs $2.7 in 2015
  • cash $1.5M vs $1.7
  • no long term debt
  • clean share structure with only common
  • no earnings
  • rev $1.5M vs $1.6
  • fully reporting with the SEC
The latest share price is $0.50, giving a market cap of $2.5M.  Up from $0.38 a couple days ago (more on that below).

I bought into ELST about a year and a half ago for 3 reasons:
  • BV was about $0.53 vs stock price of $0.38
  • recent CEO change due to long time CEO retiring
  • stock buyback at $0.38 recently announced
I put in my limit order at $0.39, waited, and eventually got my shares.  The stock buyback was only $100k but with this stock's liquidity that would be at least a year so I figured I have a floor for a while.  Maybe the new CEO is shaking things up and will realize the value.  At least something is happening.

Since then I have just been waiting and the stock has been sitting pretty idle around $0.40-ish.  The stock buyback was increased to $250k total and the latest 10Q states, "As of June 30, 2017, $192,206 remains of $250,000 approved by the board. 97,764 shares were repurchased in 2016, bringing the total number of shares repurchased to 152,090."  So the buyback is slow moving but again it provides a floor.

Now onto the interesting stuff and the reason for this blog post.  Yesterday the company put out their first operations related press release in I don't know how many years.  Going back through 8k's over the past 5 years they are all proxy related or quarterly results plus the share repurchase and old CEO retiring.

The company announced a distribution agreement with Molex.  Unfortunately they gave no numbers or guidance but it has to be substantial to put out an 8k.  I have tried to get info out of the CEO but he's a funny one that will say absolutely nothing other than what's already in filings.  I have emailed him a few times with questions and he never gives a valuable answer.  All he would tell me is this is a "material event" which is actually telling me nothing because to release an 8k implies as much.

The press release says they "have signed a Master Goods Agreement that allows Molex to sell EST’s full product line as well as integrate ESTeem technology into Molex products. This distribution agreement expands the Molex wireless communications offering and gives customers access to a broader range of solutions."  Molex is a major electronic components supplier.  They sell connectors and all sorts of individual components, as well as complete systems and I have no idea where ELST fits in.  I have emailed more questions to the CEO and expect to receive back nothing.

So here's what I would say.  The company has a buyback at $0.38.  Price has come up to $0.50 but that's not much of a change and the latest bid is only $0.41.  Value given the numbers may be around $0.50 or $0.60.  The stock is at a low range and Ted Warren would say this is the time to buy.  Just look at this chart.  No volume.  One of these days it's going to start a march upward.  The stock hasn't moved in almost 20 years.  We know it's not dropping under $0.38 any time soon.

The risk is revenue continues dropping while the company loses a battle against technology.  Revs over the past four years are: $2.2M - $1.9 - $1.6 - $1.5.

What will the company look like a couple years from now?  We have a new CEO and a stock buyback.  I don't know what Molex adds but maybe it's something and it doesn't take much to influence a $1.5M rev company.  The share count is low, the company is small, and I have time.  That boring chart is just itching to move up sometime.

disclosure: long ELST


  1. Where do you find a $1-2M market cap company?!! How do i search them, is there a list somewhere? All my screeners are like minimum $50M market cap.

    " I have tried to get info out of the CEO but he's a funny one that will say absolutely nothing other than what's already in filings. I have emailed him a few times with questions and he never gives a valuable answer. All he would tell me is this is a "material event" which is actually telling me nothing because to release an 8k implies as much. "

    = Err I disagree with you here. The CEO did the right thing, he can't give you non-public info as it's illegal. He would be in trouble, and you would be in trouble if you act or not act on it! You need to be careful with questions you ask. You should only ask about things in the public domain.

    1. If you're into screeners, has one that works down to zero market cap. Fidelity's also works. I bet there's more

      As for CEO questions I'm not asking anything crazy. I just want to know how the company is doing and what are their plans for the future. I'm not asking for EPS guidance or unannounced contracts. For example two of my follow up questions to ELST's CEO are "when will ESTeem products be available through Molex" and "what ESTeem technology will be available through Molex."

      The problem is ELST's CEO will only ever state what is already written in a filing. That is way too strict and I think he has a misunderstanding of what he's allowed to say. If that were really all that could be said then there would be no benefit to any investor ever calling management.

      QDLC used to tell me they couldn't give me any numbers due to "selective disclosure" even though state law requires them to. What BS

  2. That's not quite true, first of all there is a thing called non-material non-public information. Secondly, what most people intuitively think is insider trading is actually not illegal (in the US). The illegal part is someone giving/selling information that belongs to the company, and if the other party trades on this information it is complicit in this crime. If a CEO decides to give information away for a bona fide reason that is in the interest of the company (or you plausibly believe this to be the case) you can trade on it even though it is inside information.

  3. Dan,
    In the last 10-k the company hasn't mentioned in a single word its cooperation with Molex. Any thoughts on this matter?

    1. Disappointing

      Maybe I’ll email the CEO to ask for an update but that guy never gives me much.

    2. The annual report includes a letter from the president. He made the following comment on Molex: "We believe that EST has established itself as a manufacturer of high quality products that meet the needs of the Industrial Automation marketplace. This belief is underscored by the Distribution and Technology Agreement with Molex that was announced in our Press Release in August. We expect to begin delivering product to Molex in 2018 and, I am optimistic that this arrangement will have a positive impact on our future."

  4. any news on this one? Jumped today with low volume and no news...

  5. well my whole Molex thesis turned out to be nothing. A quote from the 10Q today, "On June 25, 2019, Molex opted to terminate the MDA that was executed on June 13, 2017 and an 8K filed on June 17, 2017. Sales for neither party were material. The Company had immaterial expenses related to this agreement and had not invested any capital resources to fulfill its obligations to the agreement."