Investors May Be Paying Too Much for Oyo Geospace’s Potential
Last summer and fall I noted that Oyo Geospace (OYOG) was getting their balance sheet in order and that a turnaround may be on its way for the company as oil prices have risen. I didn’t expect their earnings to show any improvement until their fiscal fourth quarter. Their fourth quarter, however, was disappointing in regard to their earnings.
In their fourth quarter, the company announced sales of $22.7 million, down from $30.5 million in the year-ago period. For their fourth quarter, the company lost $1.8 million or $0.30 per diluted share as compared to net income of $3.3 million or $0.54 per diluted share in their fourth quarter of 2008.
Despite the company’s poor earnings, the stock price is up over 60% since I suggested a recovery. Oyo has produced positive cash flow since then, reducing their accounts receivable and inventory. They have paid their credit line in full with only a mortgage on their production facility remaining. This isn’t the cause of the surge on the stock price, I’d guess. The stock is up on announced sales from new products and on additional sales that might occur due to the recent rise in oil prices.
Oyo Geospace does have a new promising product. Their GSR land seismic acquisition system has gained positive traction. Oyo’s annual report is largely dedicated to highlighting the product. The company announced a sale of an 8,000-channel system to Dawson prior to last quarter’s earnings then also noted the sale of three additional systems in their earnings report. The Dawson system will be delivered in their fiscal second quarter, and the revenue will be booked then.
Oyo Geospace certainly will improve their earnings performance in fiscal 2010, but for now this improvement appears to be priced into shares. I likely would not add to shares unless they drift back to the low 30s.
Disclosure: I do not hold shares of Oyo Geospace. I do hold shares of Dawson Geophysical.
