For those of you who are unfamiliar with the name, Planar (PLNR) provides LCD monitors and flat panel displays to a wide variety of end markets. The company has had a rough couple of years as more of its products have become commodotized, resulting in pricing pressure and market share losses. We liked the company when we first invested because we spotted a strong balance sheet, a new, experienced, management team intent on keeping the company cash-flow positive despite the rough operating environment in the company's legacy business, and the potential for renewed growth in high-end display markets.
Today, with the release of its quarterly earnings, Planar finally gave passive investors a detailed summary of the company's new long-term business plan. The stock cratered on the news, probably because the new initiatives will decrease earnings in the coming quarters and more importantly entail a somewhat risky acquisition which will deplete a good portion of the company's cash. For a full recap of the details, I suggest you read the earnings press release.
Overall our basic analysis of the situation is simple: What else do investors expect? Planar's business was declining and the company needed to take drastic action to reignite growth, or face almost certain failure in the coming years. In order to grow you need to invest and take short-term losses in the expectation of future long-term gains. At this point, it is obviously unclear if the company's attack on new growth markets via organic means and acquisitions will succeed, but the company's solid experience in the display industry, profit-focused management team, and the still healthy balance sheet, stack the odds in Planar's favor. Plus, unlike other growth plans we have seen at some of our other equity holdings, we think the new plan at Planar makes alot of business sense.
At less than 1X revenue with a strong balance sheet, the stock appears to have little downside at current prices (Note: we first invested at about $9.50) and if growth resumes, as we expect, the stock can easily double or more over the next two to three years. We suspect that the stock will have a tough time making any headway over the coming few quarters, as there is still alot of uncertainty surrounding Planar's new business initiatives. We would note that the low valuation is justified at this time, due to the declining revenue stream. However, any glimmer of hope or renewed growth can send this stock soaring, as was seen earlier this year.
Please Note: I first recommended PLNR at $9.50, and still hold a position in the stock. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk.