Overland Storage's Big Run May Well Continue (OVRL)

| About: Overland Storage, (OVRL)
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Shares of data storage and backup company Overland Storage (NASDAQ:OVRL) closed up 18% yesterday on raised guidance. Despite the jump, there may still be room left to run. As always, we are not making a recommendation for or against the stock, only giving you an idea to research further. We have work left to do before we are comfortable with the investment idea, but here are some initial thoughts:

OVRL’s price/book ratio is 1.14 and its price/sales ratio is 0.59. Competitor Advanced Digital Information Corp (ADIC) has a price/book ratio of 1.79 (57% higher) and a price/sales ratio of 1.27 (115% higher). (Reuters)

OVRL has about $5 in cash per share and no long term debt, compared to a recent share price of $9.77. This implies that shares are about half cash. That said, competitors ADIC and DSS also have a lot of cash, and ADIC has no long term debt. (Yahoo)

Sales have grown over the past ten years, almost every year (the company was founded in 1980; we didn’t check beyond ten years back). Starting in 6/96 and ending in 6/05, in millions of dollars, revenue was recorded at: 47, 59, 75, 92, 123, 155, 163, 196, 238, 236. (NYSEMKT:MSN)

If you believe in momentum and raised guidance, you certainly have that in yesterday’s climb and announcement. Fiscal 2007 revenue was guided for $280 to $285 million and fiscal 2008 revenue for $320 to $330 million.

In October 2005 OVRL expanded a share repurchase program from $10 million to 2.5 million shares without a maximum dollar limit.

At least one buyer flirted with Overland recently. Last October it received an unsolicited letter from ADIC offering to acquire the company for $7.90 a share. That offer didn’t go through but with a market cap of only $137 million, Overland is still easily swallowed. Possible acquirers include HP, IBM, Fujitsu and NEC, all distributors of Overland. (This is our best guest, but we are not experts in the industry. If you know better, please post.)

In our opinion, we see dollars spent on business continuity and data storage growing for the foreseeable future, although we need to do further research to hypothesize which technologies and companies will capture the growth.

The stock has mostly slid since the beginning of 2004 when it fetched around $22/share. Perhaps it has already hit bottom.

Insiders own over 13% of the shares. (Yahoo)

Recently outsourced manufacturing allows the company to focus on its strengths. From the 10K, “Historically, we have maintained a fully integrated factory in San Diego, California. However, in September 2004, in order to reduce our cost structure, increase our flexibility and improve our focus on product development, we announced plans to outsource all of our manufacturing to Sanmina-SCI Corporation (Sanmina). The transition of manufacturing of all of our products to Sanmina was completed in August 2005.