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07-30-2007 DYNT - Dynatronics
CURRENT PRICE: $1.48
TYPE OF PLAY: TURNAROUND/SITUATIONAL/MOMENTUM
Quick Facts:
*Announced NEW guidance for profitability in July 5, 2007 press release.
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Dynatronics (NASDAQ: DYNT) is a medical equipment company that serves the rehabilitation, plastic surgery, physical therapy, sports medicine, chiropractic, podiatry, dermatology and related markets.
Their steady revenue growth over the last several years has been a function of new product development and sales territory expansion (both domestically and internationally). Management has disclosed that 2006 was one of the most prolific years in terms of new product development and market introduction. In response, an additional 10,000 square feet of production capacity has recently been completed.
While this alone points to a forthcoming fiscal expansion, the recent acquisition news released on July 2, 2007 indicates an abrupt shift in upcoming revenues. Dynatronics announced the acquisition of six key distributors that will have a substantial impact in two ways. The synergistic value of owning companies that distribute Dynatronics products offers them the opportunity to place a featured importance on these items thus, increasing margins and bottom-line growth potential. The most immediate and important effect however, is a significant increase in revenue. Initial company projections are for an 80% revenue increase to be reflected over the coming four quarters and subsequent years. This increase in annual sales from $19 million to $34 million will result in a rapid improvement in the associated price-to-sales ratio and indicates the potential for a prompt price revaluation. On July 5th, it was announced that initial orders for another new product, the Dynatron X5, had surpassed all expectations. Management subsequently gave guidance for profitability in the coming quarterly report for the period ended June 30, 2007. In response, the price quickly increased and has since consolidated. In fact, during the most recent market tumble, DYNT's price per share has shown a remarkable strength.
This situation is much like that displayed by InsWeb Corp. (NASDAQ: INSW) earlier this year. In late January, INSW projected profitability for their upcoming quarter. Like DYNT, the result was an immediate increase in price followed by a period of consolidation. Upon eventual release of INSW's quarterly results, the price rose a further 100%+ within a relatively short period. While this is not an absolute predictor of the response of DYNT shares to its upcoming quarterly results, it is very typical of under-followed companies that achieve an abrupt shift in fiscal performance. DYNT management has clearly disclosed that the combination of new products, sales expansion, and significant acquisitions will result in near-term profitability and an 80% revenue increase for 2008 and subsequent years.
It is important to note that the largest holders of DYNT shares, is their own management. Accordingly, an obvious vested interest in price performance is present within the company. It was indicated in the latest conference call that the company would not consider any buyout offer at the currently low price levels. Specifically, discussions focused on the goal of unlocking full shareholder value in the upcoming fiscal year. These assertions may be in response to the significant degree of consolidation presently occurring in their market sector. It was announced on July 16, 2007 that Reable Theraputics Inc. had agreed to purchase the larger firm of DJO Inc. for a total consideration of $1.6 billion. This will create one of the largest rehabilitation product companies in the world. A significant point is that Reable Theraputics is controlled by the widely followed private-equity company known as the Blackstone Group. This firm has recently spent many billion dollars in an attempt to position within growth industries and market sectors. We feel this is a further indicator of growing interest within DYNT's sector.
In the latest conference call, company management disclosed a new agreement with Sammons Preston which will allow them to distribute Dynatronics products in the southeastern United States.
Aside from the new X5 soft tissue oscillation therapy unit, Dynatronics began shipping new T-4/T-3 treatment tables within the previous and current quarters. These products should start to make an increasing impact as it marks the first full quarter of its availability. The company has additional products in development inclusive of next generation blue light therapies for which a pilot study is currently being developed. Management has indicated promising future for this line going forward.
Dynatronics also is taking steps to improve organic growth. On July 19th they hired top sales professional Jim Cavanaugh He is one of the top sales people in the therapy device industry, with over 25 years of experience.
Will all the improvements both present and upcoming in the company, we feel that Dynatronics is grossly undervalued going forward in relation to industry peers and forward growth metrics.
Links for further reading:
DYNT company homepage
SEC filings for DYNT
General DYNT statistics