AndrewGreenBull (99.05)

PDEX：Small Cap, Big Potential

March 15, 2010 – Comments (0) | RELATED TICKERS: PDEX , JAZZ , HGSI

Why so many people love small cap & penny stocks? Because the potential return is huge. Just take a look at JAZZ & HGSI, and you will know why people are so crazy for those wild pennies. JAZZ&HGSI were both traded around 50 cents in early 2009, but now JAZZ is a 20-bagger, and HGSI is a 60-bagger.

PDEX has potential to be the next X-bagger. It might not be as stunning as JAZZ & HGSI, but I think there is little doubt for it at least to be a 3-bagger by the end of this year based on the company’s fundamentals and prospects. 

For PDEX’s fundamentals, please find my last post PDEX: Profitability Will be the Key to Success in my blog.

Here I want to make some of the points more clear: 

1, PDEX is not a rookie in the industry, but a company that has decades of experience. The difference between rookies and veterans is that veterans pay fewer prices to mistakes and always has more ways to deal with difficulties.

 PDEX has the experience of overcoming the economic and business hardship in 1989 and 2002. Its share price was even lower but it eventually pulled though the hard time. I strongly believe that the company can recover from the third one, and we already see the light of hope: sales for the second quarter ended December 31, 2009, increased 9% to $5.7 million, and successfully turned from loss to profit. 

If I am not wrong, we will see that PDEX goes back to $2 level by the end of this year following the economic recovery.  

2, last December, PDEX said that one of the company’s big customers intended to develop their own product that would take the place of one that PDEX currently sells them, and this news obviously made some of the investor nervous. 

For my opinion, the impact of this news should not be as big as PDEX’s share price was affected. First of all, this customer is developing a potential substitute, but we will not know whether they could succeed or not by the end of the year. 

As we see in the last quarter earning report, PDEX already showed doubt on it: “The design and production of these products is technologically challenging, as such devices are exposed to extremely harsh surgical and sterilization conditions.  A different large customer of the Company pursued a similar course of action several years ago and ultimately canceled its in-sourcing project, continuing its purchases from Pro-Dex.”(10-Q, P30) 

Even if this customer successfully brings new products into the market, “the reduced cash flows from this customer could be offset by cost reductions as well as increases in purchases from new and existing customers.” 

We have already seen PDEX’s effort to prepare for the potential impact: the company will attend several major expos from this month on, and we may hear some good news soon.  

Events: 

American Academy of Orthopedic Surgeons New Orleans, LA March 10 - 13, 2010 

OMTEC 2010Chicago, IL June 16-17, 2010 

FIME 2010Miami Beach, FL August 11 - 13, 2010 

If the old customer’s plan fails (very likely) or PDEX finds a new sales channel (I am positive on this), we will see a big jump for sure.  

P.S. some people may be curious why Scottrade put restriction on online trading. I called them many times for the same problem, but never got a clear answer. However, I found out by myself that whenever there is an opportunity, there is a restriction from them: when XNPT fell to $6.50, you couldn’t buy online, so couldn’t you buy online when RPC dropped from 44 cents to 21 cents, and you can neither buy BIEL online nor give them a call. Now the same thing is happening on PDEX. Does Scottrade restrict buys for their own purposes? What a joke!  

*Disclaimer: The author of this post is not a licensed analyst and the purpose of it is for information sharing and discussion only, not recommendation for any stock buying and selling activity. Please do your own decent research before making any trading decision