Checking up on CVD Equipment

By Travis Johnson, Stock Gumshoe, August 21, 2012

Per some requests from a few of the Irregulars, I thought I’d take a quick look at CVD Equipment’s progress and their latest earnings release and see if my opinion needs changing.

CVD Equipment (CVV) is a maker of laboratory and manufacturing equipment for advanced materials — mostly chemical vapor deposition systems for creating nanoscale products, like semiconductors and nano films like graphene. I bought shares personally this year around $11 and suggested them to the Irregulars not long after, at a similar price, and the stock got a boost in the first several months of 2012 from continuing buy pressure from Louis Navellier, who was (I think) dramatically exaggerating their potential to “dominate” the graphene market. It’s a very small company, and my thought at the time I first suggested it to you was that I wanted to see them consistently build up their sales channel so that their big transition this year, into a new manufacturing facility with twice the capacity, would lead to substantial earnings growth a few quarters out.

I was a bit too optimistic about how quickly this transition would take place, and I didn’t initially expect them to allow their backlog to drop and their sales to drop substantially as they moved, but that’s what they did. In effect, they have moved more of their sales force over to longer-timeframe projects in building interest in their advanced materials equipment and services, and they repurposed a lot of their employees to actually handling the move and the setup of the new labs and factory. This was evident in the first quarter, but it really accelerated in the second quarter. You can see the press release about the second quarter earnings here, and you know that whenever a company emphasizes the last six months, as CVV did, that means the last three months were pretty lousy. They were nowhere near the analyst estimates, though that’s no surprise because there’s just one analyst — a big chunk of that miss was the loss they took on the sale of one of their two buildings, which they expect to be made up for (and then some) when they sell their other building, a deal that’s expected to close mid-October. They say that the loss on that first sale equated to 12 cents per share, so without that the earnings would have been roughly in line with the ...

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