|
Insiders Point to a Tiny Piece of Terrorism Insurance for Your Portfolio
By Michael Brush
Exclusively for InvestorIdeas.com
July 15, 2007
With the recent attempted terror strikes in London and Glasgow – and all the talk of a resurgent Al Qaeda – you may be thinking of adding anti-terrorism companies to your holdings as a grim form of insurance.
If so, consider an obscure, micro-cap company called Guardian Technologies International (GDTI), which hopes to soon begin selling software that makes it easier to spot guns and explosives in baggage at airports.
advertisement
It’s the kind of company that could jump with news of a major terror strike. But a recent round of insider buying suggests the stock may go up anyway, for other reasons.
Since February, insiders at this bulletin board company have purchased $280,000 worth of stock at around current levels. Most recently, there was a $168,000 purchase at $1.12 on July 12. (The stock closed Wednesday at $1.16.)
That may not seem like a lot – but keep in mind this is a $40 million market cap company. So smaller purchases get a bigger weighting. Plus directors and officers own 21% of the outstanding stock, including exercisable options.
All of this is a decent vote of confidence. So what do insiders see in this stock that has done little but bum out shareholders by declining over 80% since 2005?
This:
- Guardian Technologies may finally be landing some deals in Russia for its image-enhancing software that can be grafted on to x-ray and scanning gear to make bad stuff like guns, drugs or explosives more visible to security guards.
- Over the next three or four months, the company may also finally make progress back home with the U.S. Department of Homeland Security’s Transportation Security Administration (TSA) – even if those advances may not lead to a “waterfall revenue event,” says Guardian Technologies president and chief operating officer William Donovan.
Here’s a closer look at what could be in store.
“Pinpointing” bombs, guns and knives in luggage
Guardian Technologies has a software system called PinPoint which the company says can be grafted on to x-ray and scanning machines to help security guards better spot the bad stuff in luggage. The company claims the software vastly improves detection while delivering a low rate of false alarms.
Guardian thinks it may start seeing sales develop on two fronts. First, the National Bodyguard Association of Russia (NAST) recently bought PinPoint as part of its plan to sell the software for Guardian. Guardian says NAST helps handle security at transport hubs and government buildings in Russia and neighboring countries, as well as China, Korea and the Middle East. Does this partnership with NAST mean that sales are a lock? I have no clue – but we’ll take the insider buying as a bullish sign.
Next, Guardian has been in ongoing “high level” meetings with “top-tier” TSA officials to negotiate sales of PinPoint, says Donovan, who has a background in Internet software and real estate development.
Donovan says the TSA recently signaled in a press release that it wants manufacturers of scanning and x-ray devices, like OSI Systems (OSIS) and L-3 Communications Holdings (LLL), to make more “open” systems. Donovan takes this as a sign that the TSA wants their gear to be compatible with add-ons like PinPoint. He told investors in a conference call on Wednesday to expect some kind of progress with the TSA over the next 3-4 months, but “not necessarily the waterfall revenue event.”
Medical applications
The company believes its software can also be used in the medical field – to better detect breast cancer, for example. Here, a product line called Signature Mapping enhances medical images produced by x-rays, magnetic resonance imaging or computed tomography scans, to the point where doctors can spot tumors they would otherwise miss, says Guardian.
For example, breast cancer can be harder to spot in denser tissue. But Guardian says a recent test showed that Signature Mapping achieved a 97.5% detection rate, compared to an 80% accuracy rate in current mammography procedures. The difference could reduce the number of unnecessary biopsies by about one million a year, says Guardian. Signature Mapping may also be used to detect other forms of cancer and analyze multiple sclerosis lesions or damage from brain injuries. The company recently launched a subdivision called Applied Visual Sciences to try to sell this product.
Some warning signs
Though the insider buying at Guardian Technologies is reasonably bullish, there are also some warning signs that suggest you might want to limit position size. First off, the company is, shall we say, enthusiastically promotional. This is not always a reassuring quality in a micro-cap name. For example, Guardian has issued a flurry of 13 press releases since the start of June. To put that in context, that’s just one less than the number of press releases issued by Intel (INTC) in the same time frame, even though Intel has a market cap 3,625 times that of Guardian.
Next, Guardian Technologies racked up a net loss of $10 million last year, and $13 million the year before. Donovan admits the company will need to do a capital raise before the end of the year, though he qualifies that by saying much of the money will be used for acquisitions on the medical side of the business.
Another bullish sign
On a more bullish note, shareholders seem downright fed up. This low level of investor sentiment could be a sign the stock is finally bottoming, after falling 46% in the past year and over 80% in the past two years.
Negative shareholder sentiment, for example, bubbled up to the surface on several occasions during Wednesday’s conference call. “Are we finally market-ready? And do we have a product that we can finally sell in the world?” asked one long-term shareholder. He said he’s been waiting for at least three years for sales to translate into profits in his Guardian holdings. “Is there one thing that keeps this thing from getting sold? What’s holding up sales of software?”
In response, Donovan used the old salesman’s trick of spinning a positive from a negative. He said the software technology is so “cutting edge” and “forward thinking” that potential users have to take a lot of time to do extensive testing because it all “seems too good to be true.” Again, that’s a bit too promotional to actually be reassuring, but he added another point that makes some sense: The first actual sales may cut through a lot of that skepticism, possibly clearing the way for many more sales. “We need to get the first run on the board, and I think Russia will be the first run on the board,” says Donovan.
The bottom line : We may soon find out if he’s right about that. In the meantime, given the red flags and the normal risks with small-cap bulletin board stocks, I’d limit position size on this one.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorI deas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp . InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
|
