Don't Believe The Numbers: Amtech Systems Is A Sell

| About: Amtech Systems, (ASYS)

One of the truly great benefits of the Internet revolution has been the vast expansion of information available to the individual investor. I am (barely) old enough to remember when Standard & Poor's distributed a printed guide to US markets, with columns of information like earnings per share, market capitalization, and balance sheet data in tiny print. That guide was updated quarterly, meaning the data on which many individual investors were making investment decisions was at best, a week old, and in many cases, months old.

Now, of course, there are vast amounts of information on US and foreign stocks, updated in nearly real time, available for free on myriad websites (including, of course, this one). Charts, dividend histories, earnings histories, and SEC filings are available instantly -- and this vast increase in information has been no doubt been a boon to the individual investor.

That said, investors must learn to take that information -- like all statistics, to be honest -- with a grain of salt. There are more errors in the publicly distributed data sets than many realize; earnings per share figures may not be comparable or may be inflated by one-time items not included in future analyst estimates compiled by websites like Reuters; and the lag in updating certain figures can lead to erroneous impressions of certain stocks, particularly those in quickly changing industries.

Right now, there is no better example of why skepticism is required than semiconductor equipment maker Amtech Systems (NASDAQ:ASYS). One look at the company's page would seem to show a steal of a company. The stock closed Thursday at $6.80 per share; yet ASYS offers $5.80 per share in cash and no debt, leaving the small-cap company's enterprise at just $1 per share, or $9.5 million. And yet, the company earned $1.73 per share in the trailing twelve months, putting the P/E below 4, and well below 1 when backing out the company's cash.

Now, an investor might look at forward earnings, down sharply at 45 cents per share, note the company's reliance on the still-struggling solar industry and realize that, perhaps, there are some good reasons for the stock's decline. A quick look at the chart shows that the stock traded at $18 per share just nine months ago, and in the $25 per share range in early 2011. But it might appear that this is a company that has been unfairly brought down by its industry's struggles.

The problem with that theory is that the data is outdated. After yet another disappointing earnings report on Thursday, the Amtech story is disintegrating so fast that even the Internet can't keep up. Amtech lost 54 cents per share in its fiscal second quarter (ending March 31st), compared to a profit of 77 cents per share in the year-prior period. Trailing earnings are now just 46 cents per share, down from $1.73 before this quarter's results and $2.34 per share before the December quarter earnings report back in February. Amtech's cash has decreased as well, from $5.80 last quarter to $5.15 as of March 31st (that figure excludes restricted cash).

In fact, the notion of Amtech as a profitable company will be completely wiped out by the time it reports fiscal Q3 results some time in August. The company earned 74 cents per share in the year-ago quarter; it guided for a net loss in Q3FY12, which appears to be substantial. Gross profit for the quarter, according to revenue and margin guidance, will not cover R&D spending, let alone SG&A. With revenues decreasing, and R&D "expected to be significantly higher" in the quarter, net loss will almost definitely exceed this quarter's 54 cents per share loss. That loss should lead to negative operating cash flow, with the company burning more cash and seeing its cash balance drop below $5 per share -- at least.

So what looks now like a bargain -- a $6.80 stock with $5.80 in cash and 45 cents in annual profit -- will in three months, on the same site, be a $6.80 stock (if bought at the current price) with perhaps $4.50 in cash, and a trailing loss of 90 cents to $1 per share. Those two data sets tell two completely different stories; but only one is accurate.

Still, as noted, our Finviz data is projecting a rebound in earnings at Amtech. According to Reuters, FY2013 (ending September) earnings per share have a consensus estimate of 44 cents per share, with a high projection of 70 cents per share, and a still-profitable 2 cents per share earnings from the most bearish analyst. So, even if 2012 has been a bust, long-term investors should be able to profit when the industry rebounds.

Unfortunately, that data is misleading as well. Note that consensus estimates for the twelve months ending in September 2012, according to the website, are for a loss of 43 cents per share. Amtech has already lost 63 cents per share in the first two quarters; based on the aforementioned third quarter guidance, its total loss for the first nine months will almost certainly exceed a full dollar per share. And given that revenue will be down by some 73% in the third quarter year-over-year at the midpoint of guidance, it seems highly unlikely that Amtech will see a profitable fourth quarter, meaning its fiscal 2012 full-year loss would appear to be in the range of $1.25 to as high as $1.75 per share.

Yet Reuters' most bearish analyst projects a full-year loss of just 83 cents per share. In fact, one analyst still projects 39 cents per share in earnings for fiscal 2012. Reuters' data has obviously not kept pace with the company's struggles, or the massive supply glut in polysilicon, or the earnings destruction at firms across the solar sector. As such, the profitable 2013 estimates would appear to be equally outdated.

In short, it appears highly unlikely that ASYS will see any profits over the next six quarters. The entire solar supply chain is under attack; the Bloomberg Leaders Solar Index is off by two-thirds over the past year. Polysilicon prices have fallen by over 90 percent, with no relief in sight. Bankruptcies are occurring throughout the sector.

Meanwhile, Amtech has burned nearly 28% of its cash over the past six months. Increased R&D spending for new products is a culprit; but negative operating margins are the main driver. As a small-cap company whose customers are getting pummeled by the solar crash, Amtech has no leverage, and no choice but to attempt to survive the next few years and hope the industry can turn around.

Amtech may do so. Cuts to solar subsidies (such as those in Germany) may be re-negotiated, the supply glut may slowly clear up, and continued pressure may bankrupt weaker competitors, clearing the way for a more reasonable (or at least sustainable) pricing structure. But, by that time, the cash balance will have decreased, and Amtech will have posted at least two years of significant losses -- hardly the characteristics of a value stock. Investors willing to take a gamble on a rebound in solar can consider a purchase of ASYS; but it's not a value stock, no matter how good the numbers look today.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.