“An Army of Bees Hunting Bin Laden”

by Travis Johnson, Stock Gumshoe | November 12, 2007 1:48 am

That’s the intriguing subject line of a forwarded email a reader sent in, advertising the Untapped Wealth[1] Newsletter that can come your way for $99 a year. It’s a nanotechnology[2] and defense teaser, which is where that idea comes from — they’re building, or at least envisioning, little drones[3] that are the size of bumblebees.

But this particularly nanotechnology company has nothing to do with that specific product or mission, it appears to me.

Much of the email is a long-winded tease for nanotechnology in general — the fabulous things it will make possible, and in particular the massive ramifications for the defense industry. Nanotechnology, for those unfamiliar with the term, is the science of making insanely small things — a nanometer is a billionth of a meter. The most commonly used reference to this in investing, probably, is the semiconductor business — Intel and their competitors are currently working on a 65-nanometer scale in creating microchips, and it gets a bit smaller every few years. So, really, really small.

And this email really pulls out all the science fiction-like ideas that nanotechnology might bring to defense — bulletproof fabrics, satellites the size of a grain of sand, the aforementioned bee-sized drones, etc. etc.

So what do we learn about this particular nanotech company? What are our clues?

It’s priced at about $2.65 a share, and they have 19.3 million shares outstanding. You can do the math, but it’s something like a $50 million market cap. A very, very small public company.

And the strongest clues? A few notes about some of the conracts they’ve won. Here’s how they describe the company:

“They’re a leading supplier of opto-electronic solutions and Terahertz sensors and instrumentation that are used in the military and private industry.”

OK, so that’s not as sexy as bee-size drones chasing terrorists … but they’ve got some interesting government business:

A way to examine the external fuel tanks on the Space Shuttle

A technology to protect Air Force radar equipment from the elements.

Some of the components of the Tow Missile.

So … what is this little nano company?

According to the vast nanotechnology powered cognitationizing might of the Gumshoe’s Thinkolator, the company we’re being teased with here is ….

Advanced Photonics (API)

This is actually even an exchange listed company — they’re on Amex, which is at least a step up from the OTC market, though it’s still of course looked down upon a bit by the NYSE and Nasdaq guys. They do have all of those teased businesses, and the price is in fact even still at $2.65.

And, if you’re interested, they’re reporting their earnings on Monday and will have a conference call at 5 — which would probably be a good opportunity to bone up on who they are and what they do.

They are, of course, not profitable — sometimes it seems that nanotechnology companies aren’t allowed to be profitable. They’ve got a fair but not excessive amount of debt. And the sales aren’t going up all that quickly, about 8% in the last quarter.

The one thing that does stand out as somewhat interesting is that there may be a reasonable valuation hiding in there somewhere — the price/sales ratio is near 2, and the price/book ratio is likewise quite near 2. I haven’t digged in to see how they’re valuing their assets to get to that book value, or even what their assets are, but those numbers are both shockingly low, in my experience, for a tiny technology company. On the flip side, of course, we note that even though they have a nice low price-sales ratio, they’re not anywhere near to the point where they’re making money from those sales. And that, of course, is the goal of most non-nanotechnology and non-biotechnology companies: selling something for more than it costs to produce. API isn’t there yet, I don’t know when or if they’ll get there.

So … do you know anything about this little company? Any nanotech ideas you’ve been nursing and dying to share? Throw ’em on the pile!

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