Wadi Rum

Force Protection: Classic Example of Defense Boom/Bust

The article is correct that the stock is unlikely to get back to 31. However, it is not currently selling anywhere near there. A move from $3 to $6 would be a tremendous return. So the question is really not whether it will go up by 1000 percent.

So what is the case for buying FRPT? At $3, the market cap is about $200M. It has $70M in cash and no debt. So that explains about a third of the market cap. Then it has accounts receivables and inventory (net of payables) that explain nearly another third of its market cap (and the receivables WILL be paid barring a default by the US govt). So, for the remaining $70M-$100M in market cap you are getting an order backlog of near one billion (with a "b"), an additional order stream of Buffalo vehicle to the US govt of about $100M/year for the foreseeable future, servicing revenues (over $100M/yr while they we are at war, much less if most are mothballed), anticipated orders from DOD to upgrade the existing fleet (perhaps another quarter billion), and the potential for future foreign orders (so far FRPT is favored by the English, Canadians, and Italians, and FRPT has responded to 4 other foreign RFPs, including one for Cheetah). Oh, that's right. I haven't mentioned Cheetah, the lighter, faster, higher MPG, more off-road friendly MRAP that happens to have passed DOD blast testing at the higher MRAP II standard. Then there is the JLTV program to replace the Hummer, where they can be subcontractors even if they and DRS do not win the design competition.

That to me is a lot to get for $100M. Again, the stock does not have to get to $31 to yield a very, very nice return. The stock is, however, "in play" with traders and has a large short interest. Thus, do not bet the farm and do not buy if you can't weather a move from $3 to $1.50 on your way to $6. I believe that patience will pay off on this one -- and there is a fair chance that the move to $6 will happen sooner rather than later.

All just in my own opinion. Disclosure: I definitely do have a long position in this stock, with a basis around $2 this time around. I trade a portion of my position based on TA.