Last night, I allowed a very small stock with very low volume make the “Interesting Stocks” section of the daily screen. I also said that I would look into the numbers deeper (fundamental analysis). WIRELESS XCESS (XWG) is engaged in the nationwide sale and distribution of a wide range of products, accessories and components for cellular phones, including batteries, chargers and antennae. The Company’s products are generally sold through third party retail stores or Web sites and directly to customers on the Company’s Web site.
After researching the Annual Income Statement, I have come to these early conclusions:
Revenue rose from fiscal year 2003 to 2004 from $11,469 to $15,307 (all numbers in thousands in this analysis) but the total revenue in 2002 was at $14,068. Looking at these numbers, you can see how revenue fell in 2003, only to rebound in 2004.
Next, I looked at the Net Income applicable to common shares and I saw an increase from 2002 to 2004:
2002: ($541)
2003: ($164)
2004: $1,008
Remember that numbers in parenthesis are represented as negative, so the ($541) and ($164) represent losses.
The increase would be great except that sales are not increasing with the same consistency. Companies have two ways to increase their bottom line:
1. Slash costs and operating expenses
2. Increase Sales
I prefer companies that are increasing sales rather than slashing operating expenses. To defend my opinion, a company can only cut costs by so much for so long, meaning the rise in the stock price will eventually stop. Companies that increase sales generally have products that are in demand and can continue to increase earnings though greater revenue streams. The best companies do both, cut costs and increase revenues, allowing the EPS to rise quarter over quarter.
Looking at the bottom line for Operating Income or Loss for Wireless Xcessories, we can see a decrease in operating expenses, therefore giving the bottom line room to grow:
2002: ($524)
2003: ($171)
2004: $909
When I look to Assets, I see an increase in cash from 2002 to 2004 but I see a decrease in Net Receivables from $1,213 to $1,144. The inventory has also increased which isn’t the best thing if sales aren’t also increasing. The total current assets have increased year over year but I am a bit skeptical because liabilities have also increased slightly.
After checking out the cash flow statements, I can see that borrowing has declined but total cash flow from operating activities are down from 2002 to 2004 from $1,487 to $1,066.
The CEO has been selling shares in June in the $8 range but I don’t have any concrete data other than basic yahoo finance to finalize my opinion. As far as earnings are concerned, I haven’t been able to come across reliable information as the company is young and was a penny stock as recently as last year.
Bottom line, the company may continue to increase its stock price based on speculation and cost cutting but I won’t be very interested in buying shares in the company until revenues increase by at least 25% per quarter.
I hope this helps with your own analysis,
Piranha
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