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STOCK WATCH / Robert Hanley

High-Tech Survivor Seems Ready to Soar : Triple-Digit Gains Make Laser Precision Shares Worth a Look

November 16, 1986|ROBERT HANLEY

The price of Laser Precision Corp. stock has more than doubled already this year, but some analysts think it could be well on its way to tripling.

Starting from a price of $3.75 a share at the beginning of this year, stock in this Irvine high-tech firm has been steadily rising to close Friday at $8.375 a share--for a year-to-date gain of 123%.

And now some analysts say that continued earnings gains could push Laser Precision shares into the high teens next year.

Like a lot of high-tech companies that went public in the early 1980s, Laser Precision had a sharp run up after its initial public offering, peaking at $12 a share. Earnings failed to materialize, and eventually Laser Precision slid to a low of $1.50 a share.

Turnaround Year Shaping Up

But unlike a lot of those hot new-issue, high-tech firms of the time, Laser Precision survived. And 1986 is shaping up to be a turnaround year for the company.

Since the final quarter of 1985, Laser Precision has achieved successive quarterly profits. As of the end of September, net earnings for the first nine months of 1986 totaled $823,749, compared with a net loss of $390,662 a year earlier. Revenues climbed 70% to $10.9 million from $6.4 million a year earlier.

Those new-found profits have come largely from a laser-driven device used to detect flaws in fiber-optic cables, such as those used in long-distance telephone lines. During the third quarter alone, sales of this device increased 300% over the previous year.

Because of this growth, Laser Precision stock has a pretty good chance at hitting the "mid to high teens" next year, said Larry Selwitz, an analyst with Bateman Eichler, Hill Richards Inc.

Liquidity Poses Problem

But before investors attempt to get in on the action, Selwitz warns that because there is so little Laser Precision stock in public hands--only about 2 million shares--liquidity could be a real problem. "That's why we try not to recommend low-float stocks," he said.

To remedy that situation, Laser Precision officials are considering increasing the number of shares outstanding, possibly by a stock split or secondary offering, according to Gregory Miner, chief financial officer. The small float, which tends to discourage wider interest in the stock, is a frequent criticism voiced by the analysts, he added.

A bigger float would be good news for the small investors and institutional holders who might be otherwise attracted to Laser Precision, but stay away because of the potential volatility.

Smith International Inc. hit a high last week of $4.125 a share, the first time in months that the Newport Beach-based company has broken the $4-a-share barrier.

On weekly volume of 586,700 shares, Smith closed Friday at an even $4 on the New York Stock Exchange, up 62.5 cents for the week. The week's gain represents a hefty 18.5% increase in market value. The shares have nearly tripled from its 52-week low of $1.50 a share hit earlier this year.

Fueling the strong performance is speculation of a deal between Smith and Baker International Corp.

Orange-based Baker earlier this month agreed to merge with Hughes Tool Co. of Houston. This is important for Smith because of the $204-million patent-infringement judgment Hughes won against Smith last February.

Analysts have speculated that Baker, which will clearly be in the driver's seat after the merger with Hughes goes through, will cut a deal with Smith to reduce the oppressive judgment.

On a combined basis, Baker-Hughes will control about half of the domestic market for rock bits, which are used in oil drilling. Herbert Hart, of San Francisco-based S.G. Warburg, Rowe & Pitmann, Akroyd Inc., said the antitrust implications of the deal could be a bullish indicator for Smith.

"They have got to preserve competition for the Baker-Hughes merger to pass the Justice Department," Hart said. "They certainly will have a better case if they have a strong No. 2 competitor in Smith."

Moreover, with the news last week that a Hong Kong firm has acquired a 5.7% stake in Smith, Hart said some people think an acquisition or financial bailout may be in the works. "That certainly is the sort of thing that will raise speculative interest," he said.

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