Are Investors Paying Too Much for Oyo Geospace's Potential?

 |  Includes: DWSN, GEOS
by: Investorpoet

Last summer and fall I noted that Oyo Geospace (OYOG) was getting its balance sheet in order and that a turnaround may be on its way for the company as oil prices have risen. I didn’t expect its earnings to show any improvement until Oyo's fiscal fourth quarter. Its fourth quarter, however, was disappointing in regard to its earnings.

In its fourth quarter, the company announced sales of $22.7 million, down from $30.5 million in the year-ago period. For its fourth quarter, the company lost $1.8 million or $0.30 per diluted share as compared to net income of $3.3 million or $0.54 per diluted share in its fourth quarter of 2008.

Despite the company’s poor earnings, the stock price is up over 60% since I suggested a recovery. Oyo has produced positive cash flow since then, reducing its accounts receivable and inventory. The company has paid its credit line in full with only a mortgage on its production facility remaining.

This isn’t the cause of the surge on the stock price, I’d guess. The stock is up on announced sales from new products and on additional sales that might occur due to the recent rise in oil prices.

Oyo Geospace does have a new promising product. Its GSR land seismic acquisition system has gained positive traction. Oyo’s annual report is largely dedicated to highlighting the product. The company announced a sale of an 8,000-channel system to Dawson Geophysical (NASDAQ:DWSN) prior to last quarter’s earnings, then also noted the sale of three additional systems in its earnings report. The Dawson system will be delivered in its fiscal second quarter, and the revenue will be booked then.

Oyo Geospace certainly will improve its earnings performance in fiscal 2010, but for now this improvement appears to be priced into shares. I likely would not add to shares unless they drift back to the low 30s.

Disclosure: I do not hold shares of Oyo Geospace. I do hold shares of Dawson Geophysical.