Sigmatron Intl (NASDAQ:SGMA)

Third Quarter Highlights:

• Revenues increased to $36.9 million for the third quarter fiscal 2011 from $30.6 million for the same quarter in the prior year.
• Net income decreased to $254,818 in the fiscal 2011 period compared to $415,468 for the same period in the prior year.
• Basic and diluted earnings per share were $0.07 for the quarter ended January 31, 2011, compared to $0.11 for the same quarter in fiscal 2010.

Commenting on SigmaTron's third quarter and nine month results, Gary R. Fairhead, President and Chief Executive Officer, said, "I am pleased to report a profit for our third quarter of fiscal 2011, but the amount of the profit did not meet our expectations. Several items negatively affected our results both expected and unexpected. The weakening of the U.S. dollar had an unexpected and significant negative effect on the quarter."

"Going forward, we expect continued pressure on our margins as raw material costs continue upward and we have limited or delayed ability to pass along the increases to our customers. We continue to work with our customers and vendors in efforts to take out cost and to try to minimize the effect on margins. We also need to grow revenue, diversify our markets served, which should help us manage the situation. However, some of our new programs will not be significant revenue contributors until later this calendar year.

The Company anticipates that its new credit facilities, cash flow from operations and leasing resources will be adequate to meet its working capital requirements and capital expenditures for the balance of fiscal year 2011.

Source: April 2010 10K

Commenting on SigmaTron's results, Gary R. Fairhead, President and Chief Executive Officer, said, "I am pleased to report our third consecutive profitable quarter and perhaps even more significant, a quarter in which our revenue grew nicely from the levels in quarters two and three. While I have repeatedly pointed out that revenue levels are not always good indicators of financial performance in our industry because of the various types of services we offer and products we assemble, our increased revenue in the fourth quarter was generally across our entire customer base and I believe was indicative of improved levels of economic activity. If that trend continues, it should point to better days ahead for the Company as the U.S. and worldwide economies hopefully recover and grow..

Added to the GeoSpecial list on July 13, 2010 @ 7.05. Was previously coded as a GeoSpecial on the radar at $5.20.

Catalyst: Fiscal 2010 fourth quarter EPS may have experienced a break out; Was selling below its book value per share of $12.28; Upbeat about the future; Strong commentary; We believe technology stocks will experience strong financials in the near term. 

Peak performance: Stock just added to the GeoSpecial list

Current Price: $7.05

Current road block: SGMA operates in a volatile industry where trends can change quickly; Company has an erratic EPS history.

The Key to finding success in a stock like SGMA is to consider it when it is entering a unique point in its growth cycle.  Fiscal 2010 fourth quarter revenue increased 28.8% to $34.98 million.  This was SGMA's first revenue gain of over 15% in seven quarters.  Fourth quarter operating EPS grew 500.0% to $0.24  and was the best quarter of its year which easily eclipsed any of the previous six quarters where the highest  EPS achieved was $0.13.

Also consider:

• Results substantially exceeded expectations outlined in the fiscal 2010  third quarter:

  "Heading into our fourth quarter, we see many customers adjusting inventory levels short term. My current expectation is that revenue during the fourth quarter will be lower than that of the third quarter ($30.6 million)."

• Additional third quarter comments insinuated that SGMA's first two quarters of fiscal 2011 would show growth:

  "I also believe that the second half of calendar 2010 will be stronger than the same period of 2009."

The fourth quarter results solidify this position. With trailing EPS of $0.49 investors need to ask themselves if SGMA can experience P/E expansion to about 20 and approach its book value per share.  This would imply a price target of $9.60 to $12.28

We are still awaiting the release of the 10K to determine if liquidity is intact.