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Mark Gomes
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This profile, along with Mr. Gomes' investment methodology and article on "Tripling Your Money" (http://tinyurl.com/nx336wn) are required reading to understand how Mr. Gomes' researches and trades his picks. His updates are communicated via his Seeking Alpha Instablog/Articles/Comments and... More
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Pipeline Data, LLC
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  • TechPrecision: 10 Bagger Or A Bust? 23 comments
    Jul 22, 2013 8:22 AM | about stocks: TPCS

    TechPrecision (OTCQB:TPCS) is a diversified manufacturer, specializing in the production of large components that require an abnormally high degree of precision. For the past several years, TPCS has been gearing up to ride the wave of several high-growth markets, including Oil & Gas, alternative energy, advanced cancer therapies, and sapphire smart phone displays.

    After all this heavy lifting, the company is well-positioned to reap the rewards of these opportunities. However, the company's recent news flow has been very negative. Consequently, investors have been rushing for the exits.

    How It Could Bust

    The first shoe to drop came when TPCS's CEO, James Molinaro, resigned his post after philosophical differences with the board of directors came to a head. Prior to Molinaro's arrival, TPCS was an underachieving company. Despite its many capabilities, management seemed content to exist on a diet of one-off / custom projects with little or no lasting value.

    Turning that around required two things: 1) a complete reprogramming of the corporate culture and 2) the development of longer-term value-added deals to raise the value of TPCS to a strategic level. Neither is easy and neither occurs quickly.

    Molinaro demonstrated some progress on both counts. However, the company needed leadership that could convert its strategic partnerships into revenue…and more importantly, profits. That is the mission of incoming CEO Leonard Anthony, who had been named TPCS's Chairman in January. We have had multiple discussions with Mr. Anthony and feel that he's the sort of executive who aims to underpromise and overdeliver.

    The second shoe dropped when TPCS filed an NT 10-K, signifying that it was unable to complete its annual report on time. The filing disclosed that TPCS expects to report a loss for the fiscal year (which ended in March). More ominously, it disclosed that the company requires an amendment to its credit facility, with obvious implications for its future as a going concern.

    How It Could Become A Ten-Bagger

    For the record, it is our belief that Mr. Anthony's turnaround plan will give lenders the confidence needed to grant TPCS the time it needs. Specifically, we expect Mr. Anthony to rein in the TPCS's excess spending and reestablish profitability as quickly as possible. This will enable the company to begin executing against several projects that could accelerate in the coming months.

    In other words, the company got ahead of itself and requires a few months of breathing room to ramp its projects up. After that, the profitability of these projects should enable the company to stand on its own, start growing, and start paying down its debt. The company has a book value of over $10 million, so TPCS's bank simply needs to understand the near-term nature of its situation.

    Clearly, this sort of situation is scary. This is especially true for investors who are unfamiliar with such dealings. However, we view this situation as less dire than the one it encountered at the end of the Great Recession. Back then, the company was forced to do a dilutive equity deal. The shares fell to a low of 30-cents at the time, but two years later it was over $2.00, a 7-bagger.

    The Current Business

    Taking everything into consideration, we believe the odds of bankruptcy are low, but notable (in the range of 10%). We further believe that these odds are matched by the stock's chances of eventually rising to $5.00 per share (if the company isn't acquired first).

    That being said, the most likely scenario is somewhere in between. TPCS is generating about $40 million in annual revenue. In addition, it has opportunities lined up in the cancer, nuclear, and sapphire markets - three of the hottest areas of advancement in the United States.

    Its prospects will be further augmented by its work with the U.S. Navy, whose submarine program averted sequestration cuts (albeit at the expense of other branches of the armed forces). In fact, the Virginia-class submarine program was recently expanded.

    Here's the rundown:

    Cancer Treatment - Proton-beam therapy is on the rise and TPCS was recently awarded a 5-year, $115 million contract with Mevion, arguably the industry's hottest proton-beam vendor. Under the terms of the deal, TPCS will be the exclusive manufacturer of Mevion's new S250 Proton Therapy System.

    The S250 is currently being tested and should report on a major milestone in the coming weeks. If the results are positive, we believe TPCS's multi-year deal should immediately begin to ramp up. Mevion's recent round of funding ($55 million in June) was granted to accelerate proliferation of the S250 into the marketplace. This indicates a great deal of confidence on the part of Mevion's investors.

    If all goes well, we calculate that this could become a $50 million business for TPCS by 2017. We would also anticipate a Mevion IPO, which would surely draw attention to TPCS's role in its success.

    Nuclear - TechPrecision had been supplying components to the nuclear power industry for over 50 years. It remains one of the few U.S.-based precision manufacturers with nuclear component (N-Stamp) certification. President Obama's nominee for Secretary of Energy, Ernest Moniz, is a nuclear advocate. Regardless of your political views, the administration is demonstrating a clear commitment to nuclear energy.

    In fact, nuclear proliferation is now accelerating on a global basis. There are over 400 nuclear power reactors operating in more than 30 countries. Dozens more are under construction in 13 countries. Most of the new construction is taking place in Asia. However, according to the World Nuclear Association, "there are major plans for new units in the USA and Russia."

    One problem with this is that the majority of containers (a.k.a. casks) used to transport nuclear isotopes are over 30-years old. For obvious safety reasons, we estimate that over 500 of them need to be replaced with newer, safer casks. At present, we believe that TPCS is the only manufacturer of modern NRC-Approved isotope transportation casks. They have already proven their ability to manufacture them to the NRC's approval. If / when they prove they can ramp production, we expect orders to start coming in. At a price of $1 million apiece, this appears to be a $500 million opportunity in its nascent stages.

    Sapphire - Shares of GT Advanced Technologies (GTAT) have skyrocketed on the belief that sapphire is on the cusp of wide-scale commercial adoption, primarily in cell phones. Compared to any other transparent surface (except diamond) sapphire is virtually unbreakable and scratch-proof. In fact, sapphire is 2.5x harder than Gorilla Glass and GTAT expects that most smartphones will employ sapphire within the next few years (based on discussions with phone manufacturers). This makes them a perfect substance for cell phone screens.

    TPCS manufactures sapphire furnaces and has historically sold them into GTAT. Based on what we are seeing in the underlying demand for sapphire, TPCS's furnace business should rebound this year. That rebound could be significant if one of its customers wins a cell phone contract. From what we've gathered, one of the two gaiting factors has been a lack of manufacturing capacity. The other factor has been price, but that is coming down quickly, due in large part to new manufacturing processes being developed by GTAT.

    Our research suggests that a sapphire phone should only cost $15 more than a glass-screened phone. Considering that most consumers spend that much on screen protectors, it seems like we've hit a no-brainer inflection point on cost. TPSC gets $50,000 per oven with high-30s margins. Based on math provided by TPCS, 1% of the cell phone market would require the equivalent of 3,000 TPCS furnaces. Of course, we need to take market share into account, but GTAT's leadership position gives us confidence that TPCS is in position to be a beneficiary here. We believe this will be a $20 million opportunity for TPCS within a few years.

    Naval: On April 10, the U.S. government provided approval for the purchase of 10 Virginia-class submarines. The reason is that the Navy is seen as providing more bang for our budget dollars. By shifting spending there, overall military spending can be cut without a loss in military might. At one point, TPCS was doing just $300k of work per Virginia-Class sub. It has since grown that number to $7 million per sub. That's $14 million per year under the new work order.

    TPCS could conceivably increase their share to $15 million per submarine by building more assemblies for its current customers, who include General Dynamics, Babcock and Wilcox, and Northrop Grumman. The government's order for 2 submarines per year (versus the usual 1) requires General Dynamics (NYSE:GD), Babcock and Wilcox (BWC), and Northrop Grumman (NYSE:NOC) to scramble for additional manufacturing resources. This provides cause for optimism as it relates to TPCS's opportunity here. In the meantime, $14 million per year seems like a solid bet.

    Other Opportunities - TPCS is also involved in other areas, such as Oil & Gas and the solar market (which could finally rebound in the coming year). The Oil & Gas opportunity would be relatively new, but Solar was a major revenue contributor for TPCS a few years ago (GTAT was its primary customer). Investors shouldn't hold their breath waiting for these opportunities to bear fruit, but we felt it was prudent to mention them for those of you looking to do additional due diligence.

    Valuation: Because of its recent troubles, shares of TPCS have pulled back to levels close to its book value. If Mr. Anthony can quickly establish sustainable profitability, book value should serve as a floor under the shares. From there, the shares and company can initiate a return to growth.

    Via direct discussions with the company, we determined that its current operations can support upwards of $60 million in revenue. Of course, building this much capacity is what led to its current cash crunch. However, it also gives the company a good amount of operating-margin leverage. In other words, any new revenues will contribute disproportionately to the company's profitability. Because of this, along with 1) the financial prudence of its new CEO, 2) its line-up of opportunities, and 3) what the bank stands to lose, we believe that TPCS is most likely to find financing for its ongoing and future projects.

    Once that becomes a certainty and TPCS returns to profitability, investors will inevitably turn their attention to revenue growth and earnings forecasts. From that perspective, Mr. Anthony believes that the company's unique capabilities and N-stamp certification give it the ability to thrive, given continued direction and leadership.

    Ultimately, its capabilities and leadership could support a multi-hundred dollar business. However, for now, investors should remain grounded and focused on the future size of its current opportunities -- and how much of that opportunity TPCS can execute against. A sample model is displayed below.

    The Bottom Line: TPCS now appears to be in good and prudent hands. Accordingly, we believe that the recently decimated share-price now offers investors an attractive level of risk/reward. Considering the risks, investors with a speculative appetite should consider position sizing carefully. That being said, TPCS does appear worthy of that consideration.

    Disclosure: I am long TPCSE.PK.

    Additional disclosure: Effective immediately, we are adding TechPrecision to the Poised To Triple Speculative Portfolio. Be sure to review our latest Methodology piece (at PoisedToTriple.com) for critical information on how to approach speculative investment opportunities.

    Stocks: TPCS
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Comments (23)
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  • Mark Gomes
    , contributor
    Comments (3142) | Send Message
     
    Author’s reply » GTAT announced a monster deal with AAPL last night. TPCS is a supplier of sapphire equipment to GTAT, which is why the stock is ripping this AM. :^)
    5 Nov 2013, 10:06 AM Reply Like
  • bazooooka
    , contributor
    Comments (3689) | Send Message
     
    I hope you write up an update for SA. Shame they made it an instablog last time. A bottom may be in it seems, especially with the recent news.
    6 Nov 2013, 06:00 AM Reply Like
  • BaccoE
    , contributor
    Comments (13) | Send Message
     
    Mark...any insight on the move to the commissioning phase of the MEVION S250 Proton Therapy System installed at the S. Lee Kling Center?

     

    Thanks.
    3 Dec 2013, 04:20 PM Reply Like
  • Mark Gomes
    , contributor
    Comments (3142) | Send Message
     
    Author’s reply » Bacco,

     

    I'll answer this question soon. I plan on updating PTT Newsletter subscribers first (in tomorrow's edition). Remind me early next week and I'll update this board.

     

    Kindest Regards,

     

    Mark G.
    4 Dec 2013, 06:05 PM Reply Like
  • BaccoE
    , contributor
    Comments (13) | Send Message
     
    No need, I'm a life member if PTT Research.

     

    Thanks.
    5 Dec 2013, 08:39 AM Reply Like
  • Mark Gomes
    , contributor
    Comments (3142) | Send Message
     
    Author’s reply » PERFECT :^)
    5 Dec 2013, 09:39 AM Reply Like
  • megabird
    , contributor
    Comments (25) | Send Message
     
    Mark, any updates on this? thanks, Matt
    9 Dec 2013, 01:29 PM Reply Like
  • Mark Gomes
    , contributor
    Comments (3142) | Send Message
     
    Author’s reply » Nope! Stocks rise and fall every day, but companies don't change fast. For proof, just think about the company you work for. With few exceptions, it likely doesn't change very much every week, month, or even quarter ;^)
    9 Dec 2013, 07:55 PM Reply Like
  • Aaron.Rhodes
    , contributor
    Comments (362) | Send Message
     
    Hey Mark,

     

    It finally went through for Mevion: http://bit.ly/1hpjbLv

     

    There was a volume spike for TPCS at the end of the day to end at around 300,000 shares traded. I think the next few days should see some solid gains that move the floor with it. First comes volume increase then comes price.
    It took a while, but we had to be patient and suffer through the volatility that comes with the territory.

     

    Cheers,
    Aaron
    19 Dec 2013, 06:23 PM Reply Like
  • bazooooka
    , contributor
    Comments (3689) | Send Message
     
    Mark, do you think this stock is still as risky as it was last July? I know "bust" is still on the table but I'm curious how you handicap it nearly a year later based on your past article's premises.
    1 Apr 2014, 05:28 PM Reply Like
  • Mark Gomes
    , contributor
    Comments (3142) | Send Message
     
    Author’s reply » I think the risk profile is similar, but the odds of a negative outcome have decreased by virtue of its brighter prospects in several parts of its business.

     

    The bank doesn't want them to go belly up, especially if all they need is a little more time for things like Mevion to ramp up.
    1 Apr 2014, 05:41 PM Reply Like
  • bazooooka
    , contributor
    Comments (3689) | Send Message
     
    Mark, I saw you mention that this one "graduated" from your portfolio? Did it triple from your entry last Summer?

     

    Anyhow I think it could still triple again; do you plan on initiating this one all over now that it's in the 70 cent range? Are you still forecasting a triple in top line by 2016?

     

    Thanks you as always.
    3 May 2014, 10:29 PM Reply Like
  • Mark Gomes
    , contributor
    Comments (3142) | Send Message
     
    Author’s reply » It did indeed triple. However, we don't comment on the potential for future coverage. Cheers.
    4 May 2014, 01:10 PM Reply Like
  • bazooooka
    , contributor
    Comments (3689) | Send Message
     
    Mark, respectfully can you show me where you first covered it. I see this instablog as being an early SA mention but I don't see how you could have bought it at 40 cents unless you did it weeks before or after this write-up. Is an official 'public' call only reserved for SA "articles" or Poised to Triple articles?
    4 May 2014, 05:40 PM Reply Like
  • Mark Gomes
    , contributor
    Comments (3142) | Send Message
     
    Author’s reply » We picked it via PoisedToTriple and added it to our Portfolio Tracker, thus making it an official pick. Seeking Alpha chose to reject the article (it was taking a hiatus from micro-caps to ponder their stance on them in general), so the Seeking Alpha public was largely left unawares on this one. Cheers.
    4 May 2014, 06:47 PM Reply Like
  • bazooooka
    , contributor
    Comments (3689) | Send Message
     
    Approaching your original call; will you double dip this pick (or is rear view mirror tracking a waste of your time).

     

    Seems your original 2013 thesis may still be in play though. If this falls into the .50s (or .40s) either something is wrong internally at TPCS (doubtful but possible) or impatient hands have capitulated and stock is heading back to where the run first started. I'm hoping for the latter but if you tell me it seems like dead money I'd be inclined to defer.
    15 May 2014, 03:31 PM Reply Like
  • Mark Gomes
    , contributor
    Comments (3142) | Send Message
     
    Author’s reply » I've never called for the same stock to triple twice, but at the right price, I will be enticed to re-initiate coverage on TPCS. Can't say what that price might be though ;)

     

    For now, it feels like a "Something Bagger or Bust". The key to eliminating "bust" is for them to get their financing in order. Everything else seems to be lined up nicely in their favor.
    15 May 2014, 10:54 PM Reply Like
  • bazooooka
    , contributor
    Comments (3689) | Send Message
     
    It has doubled or better off of its 2009,2010 and 2012 and 2013 lows. Whenever it bottoms again I'd think a triple will be in play. Hopefully, you give it out as a freebie. =)
    15 May 2014, 11:06 PM Reply Like
  • Bullmarketcall
    , contributor
    Comments (2111) | Send Message
     
    Fundamental approach could make this one surge. Tops or bottoms are only to be mementaneous
    11 Jul 2014, 12:05 PM Reply Like
  • Mark Gomes
    , contributor
    Comments (3142) | Send Message
     
    Author’s reply » We shall see. Freebies have to create enough paying members to pay the bills. As long as that happens, I'll keep giving a certain amount of research away!
    15 May 2014, 11:39 PM Reply Like
  • Bullmarketcall
    , contributor
    Comments (2111) | Send Message
     
    Thank you for a decent approach. Presently this company has done poorly. This is due to external issues as in My view it couldnt be assigned to the core business, which could be going all good or not, but the reason for which stock has been on the downside could be more on pressure to their financials. They have recently pulled an excelent restructuring agreement and yet stck has not appreciated. This could easily be viewed in the lack of confidence and shortsight from investors for the future opprtunities. As stated, TPCS could present on going opportunities that cant be understimated. Risks have been mentioned for this company. The years that could take for this compny to grow are main reason to let it flow, hold, dont look at stock fluctuating, act as investor and not as speculator.
    11 Jul 2014, 12:02 PM Reply Like
  • Aaron.Rhodes
    , contributor
    Comments (362) | Send Message
     
    I would have agreed had the company not stated a cancellation of an order in their 10k-NT, resulting in the loss of almost 3 million. Most likely GTAT, I think(TPCS has been snubbed by GTAT at least twice in the past).

     

    I am less optimistic than before, and have lowered the price at which I would sell. They have great potential, but if they cannot execute, and lose this potential, then there is little hope for the company in the long-term. Imagine, for example, if they lose/have lost Mevion, there is little potential left.
    11 Jul 2014, 12:20 PM Reply Like
  • Matt The Intern
    , contributor
    Comments (30) | Send Message
     
    Mark provided his latest analysis on TPCS to paying members in this week's PTT Newsletter at PTT Research's web site.
    11 Jul 2014, 02:19 PM Reply Like
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