ADA popped up on my radar a week or two ago and I have been having a bit more of a detailed look at it to see if it justifies getting a share of my hard earned capital!
I dont normally like cyclical companies like this and I also am pretty wary of highly specialised IT markets - they have a nasty habit of disappearing!
On the other hand there are some things to like, clearly benefiting from the upswing of the cycle and the full benefits probably havent flowed through yet.
Its a difficult time of year to run full analysis - a bit long since half yearly numbers and too close to full year! None the less I have made some 'back of the envelope' assumptions and run them thru my spreadsheets.
ADA looks expensive on an EV/earnings ratio, higher than the market average - but if there is some more sustainable growth to be had out of the upswing in the cycle of their market then there might be some more value to be created.
The DCF models I use arent very flattering - partly because of the timing and not enough current data, but also because I suspect its pretty fully priced unless it can substain growth outside of the cyclical nature of its marketplace. Obviously the slowly increasing share of the services sector of the business help that - but they remain quite exposed in the systems sector.
The clean balance sheet is a stong positive, debt free businesses are always attractive all else being equal.
I suspect that the company is trading at fair value for the existing business, seeing some premium for the stage of the cycle. The 'blue sky' speculative interest is whether ADA can successfully monetise their tech in the voice activation field to a significant % of the business - there would appear to be widespread opportunity for the utilisation of the tech and if they can get it to market and gain some traction it may well be a significant growth potential.
I remain interested, but not yet committed!
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