1998 Stocks for Mom
May 07, 1998
InVision Technologies
Inc.
by Selena Maranjian
([email protected])
InVision Technologies Inc.
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7151 Gateway Blvd.
Newark, CA 94560
http://www.invision-tech.com
$8 5/16 as of May 5, 1998
Mom, I've got an interesting stock for you this year. I was tempted to suggest that you look at Seaway Food Town <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEWY)") else Response.Write("(Nasdaq: SEWY)") end if %>, because it's based in Mommy, Ohio (oops, that's Maumee), but then I found a more intriguing company.
Take a look at InVision Technologies. It makes bomb-detection equipment that uses computed tomography (CT) technology (known in medical circles as the computer-assisted tomography used in CAT scans). Can you think of many more worthwhile endeavors for a company?
Airport security was important way back in the 1960s and 1970s, when we traveled widely as a family. (Remember how some official tore the head off one of our dolls, looking for God-knows-what?) Well, terrorism was not an uncommon occurrence back then, and it remains unvanquished today. There's a need for the products that InVision makes and markets.
Now that you're cutting back on your hours at work, maybe you'll start traveling a little again as you ease into retirement. If you do, I'll be hoping that the airports you pass through have InVision's CTX 5500 DS machines installed and in use. So far, InVision's installed base is relatively modest, with upwards of 37 CT 5000 machines installed (but more than 100 ordered). But Al Gore is pushing for Congress to spend $100 million on explosive detection at airports. And most of Europe has agreed to begin scannning all luggage by the year 2002.
If this all isn't exciting enough, the company also has a $4.5 million contract to develop land mine detection equipment for the Department of Defense. True, this is at a very preliminary stage, but think of the possibilities... there are more than 100 million active land mines hidden in roughly 70 countries, with more being laid continually. It's depressing, but represents significant potential future revenues.
I know that you usually need more convincing, so let's look at some numbers. InVision earned $0.53 per share in fiscal 1997 is expected to earn $0.68 per share in fiscal 1998 and $0.83 in 1999. (That's roughly 25% annual growth.) Earnings have exploded (oops, poor word choice) even more, jumping from $9 million in 1995 to $56 million in 1997. (That's 250% annual growth.) For the company's 1997 fourth quarter, analysts expected earnings per share of $0.19, but the company delivered a 26% surprise, reporting $0.24.
InVision's gross margin (sales less the cost of sales) is a healthy 50%. Its profit margin (bottom-line net income as a percentage of sales) is an impressive 11.7%. Long-term debt is modest. Return on equity (ROE) is a decent 17%, with return on invested capital (ROIC) hovering near 25% and return on operating earnings (ROO) at 9%.
The CEO, Sergei Magistri, is bullish about the future. He points out that InVision is currently the only manufacturer of FAA-certified explosive detection systems, adding that, "Based on our current assessment of the anticipated timing of FAA orders, international opportunities, the planned introduction of new products, and our continued investment in R&D, we are confident of our potential to achieve 20% revenue growth in 1998."
Now that I've probably got you interested in InVision, let me confess that there are still some concerns. For one thing, the company has only recently turned profitable. It's a young firm without a long history of stable growth. It can be volatile.
Remember that good Foolish advice to look for companies that sell repeat purchase consumer goods? Well, I suspect that few people will be buying $1 million bomb detection machines week after week. Remember the equally sound advice to look into and invest in companies whose business you understand? Well, you and I are no experts in computer tomography.
InVision's machines are more expensive and slower than competing systems, but they are also more accurate. A final concern is just how sales will grow. Will governments around the world begin requiring greater airport security? Perhaps yes and soon, or perhaps not for a while -- or perhaps never.
Nevertheless, you and Dad might want to look over this company. Its website's press area has a lot of information, including press releases, a useful press kit, and a photo library of scanners and what they reveal. Here, in Acrobat .pdf format, is a nice corporate overview.
* A Stock for Mom represents the opinion of one Fool and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Fool's thoughts.