Bottom of the Barrel: On Track With Innotrac
While it's relatively small, Innotrac's (INOC) latest news may give investors a reason to go shopping.
Atlanta-based Innotrac was started in 1984 and today offers end-to-end marketing support, order fulfillment and call center service for clients from its Atlanta headquarters plus operations centers in Reno, Chicago and Pueblo, Colo. Innotrac's services include inventory management, order tracking, transaction processing and return management.
The company's customer list is impressive including BellSouth (BLS), Coca-Cola (KO - Get Report), Martha Stewart (MSO), Nordstrom.com and NAPA. Just this week it added upscale gardener Smith & Hawke to its customer list and announced plans to add a 300,000-square-foot fulfillment center just outside Cincinnati.
Turning AroundThe inventory logistics and fulfillment markets have felt the pinch of a slowing economy. Although retailers have continued to post good results, much success has come from cost reductions that directly impact companies like Innotrac. That's prompted three Innotrac competitors -- J.C. Penney Logistics, Fingerhut and Keystone -- to leave the fulfillment business in the past six months.
|At a Glance
|52-week Range||$8.92 - $3.30|
|Market Cap||57.2 million|
|Avg. Daily Volume||18,772|
|Company Web site||www.innotrac.com|
|*Based on 2002 Estimates. Source: Market Guide, FirstCall, Company Reports|
Hang-upsWhile the fulfillment business is pretty simple, there are risks to Innotrac's model and business profile. First, while it continues to shrink, the company's exposure to the telecom sector is significant. At the end of the first quarter, telecom accounted for just over 32% of the company's business. Also, the company's fastest growing business is high-speed DSL fulfillment for regional bell operating companies, which was growing by more than 6% annually as of the end of the first quarter. However, the travails of telecom companies make for some uncertainty regarding the future of that business. According to data provided by Warmington, BellSouth -- one of Innotrac's original customers -- represents 30% of Innotrac's total revenues.
|On Track at Innotrac
Revenue and earnings are stabilizing
|Year||Sales (in millions)||Earnings Per Share|
|* Estimates Source: FirstCall, SunTrust Robinson Humphrey, Company Reports, TSC Research|
That concentration is shifting: retail and catalog sales were 33% of 2001 revenues and are estimated to increase to half of total revenues by the end of this year and to 55% to 60% in 2003. While that balance is good, a higher percentage of retail-related revenues mean the company is more closely tied to the consumer economy. Finally, although this micro-cap -- only $57 million -- has no debt, it is spending nearly $3 million in the coming year to upgrade technology and logistics infrastructure. Those expenses are likely to increase as the company grows. Because the company is also looking at acquisitions, it is likely Innotrac will either be in the equity or debt markets in the future. While not necessarily problematic, acquisitions for companies of Innotrac's size are inherently more risky. Still, with an improving economy and additional new contracts similar to the Smith & Hawken contract announced this week, Innotrac should be able to grow revenue and earnings at a 15% to 20% clip over the next three years. While external growth always entails more risk and volatility, we think Innotrac is an interesting play on an economic recovery. Its small size and reliance on telecom are concerns but the growing business diversity is encouraging. We give Innotrac two barrels. For an explanation of our barrel rating system,
BarrelologyLast week we suggested taking a look at both Endocare (ENDO) and NetBank (NTBK) as possible trades. Endocare worked -- up more than 12% -- but NetBank was off about 5%. This week, we move NetBank up a notch, to the above average portion of the portfolio. The company appears on track to make 13 cents in the quarter and 65 cents for the year. Under $12, NetBank should provide 15% to 20% returns over the next year.
Raising NetBank to Above Average
|Current Rating||Company/Ticker||Date of Mention||Price 10-Jun||Mention Price*||% Change From Mention||% Change Last Week|
|Above Average Outlook|
|Fidelity National (LION:Nasdaq)||May 8, 2002||$10.50||$10.58||-0.76%||-1.22%|
|NetBank (NTBK:Nasdaq)||Feb. 6, 2002||11.77||13.45||-12.49||-5.23|
|Endocare (ENDO:Nasdq)||Jan. 23, 2002||15.12||18.21||-16.97||12.17|
|SurModics (SRDX:Nasdaq)||Dec. 19, 2001||33.66||34.60||-2.72||3.54|
|FPIC Insurance (FPIC:Nasdaq)||Nov. 14, 2001||13.25||12.83||3.27||-11.01|
|Champps Entertainment (CMPP:Nasdaq)||May 29, 2002||$12.50||$13.01||-3.92%||-3.25%|
|Wilsons Leather (WLSN:Nasdaq)||May 22, 2002||14.40||14.96||-3.74||-0.69|
|Trico Marine (TMAR:Nasdaq)||May 1, 2002||7.20||8.25||-12.73||-6.01|
|Arch Chemicals (ARJ:NYSE)||April 24, 2002||22.46||22.52||-0.27||-1.49|
|Hines Horticulture (HORT:Nasdaq)||April 17, 2001||4.10||4.75||-13.68||-6.82|
|UCBH Holdings (UCBH:Nasdaq)||March 27,2002||37.63||35.65||5.55||-2.03|
|Cost Plus World Markets (CPWM:Nasdaq)||March 6, 2002||32.84||25.83||27.14||3.76|
|Rare Hospitality Intl. (RARE:Nasdaq)||Feb. 20, 2002||29.30||25.72||13.92||7.96|
|VitalWorks (VWKS:Nasdaq)||Nov. 21, 2001||8.58||4.30||99.53||-1.38|
|Coastal Bancorp (CBSA:Nasdaq)||Dec. 12, 2001||29.90||27.84||7.40||-3.42|
|Coinstar (CSTR:Nasdaq)||Nov. 7, 2001||27.00||19.96||35.27||-4.19|
|Witness Systems (WITS:Nasdaq)||Oct. 31, 2001||6.01||8.06||-25.43||1.86|
|Hibbett Sports (HIBB:Nasdaq)**||Oct. 24, 2001||26.40||20.04||31.74||-0.75|
|Quixote (QUIX:Nasdaq)||Oct. 3, 2001||17.31||21.44||-19.26||-0.23|
|Below Average Outlook|
|Actrade (ACRT:Nasdaq)||Jan. 30, 2002||$13.57||$20.65||-34.29%||-12.28%|
|Goody's Family Clothing (GDYS:Nasdaq)||Nov. 28, 2001||10.40||4.50||131.11||1.76|
|Bridgford Foods (BRID:Nasdaq)||Oct. 10, 2001||14.49||13.18||9.94||-3.40|
|Quanta Systems (PWR:NYSE)||Jan. 9, 2002||12.75||16.05||-20.56||9.35|
|Bottom of the Barrel Income Portfolio|
|Acadia Realty (AKR:NYSE)||June 5, 2002||$7.20||$7.03||2.42%||1.55%|
|Capital Automotive REIT (CARS:Nasdaq)||April 3, 2002||22.91||22.95||-0.17||-4.54|
|Laclede Group (LG:NYSE)||March 20, 2002||23.31||23.64||-1.40||-2.88|
|Alexandria Real Estate (ARE:NYSE)||Feb. 13, 2002||46.75||40.25||16.15||0.52|
|Empire District Electric (EDE:NYSE)||Jan. 16, 2002||19.46||21.23||-8.34||-2.21|
|Met-Pro (MPR:NYSE)||Oct. 17, 2001||14.96||11.16||34.05||-0.13|
|Integra Bancorp (IBNK:Nasdaq)||Jan. 2, 2002||22.60||20.75||8.92||0.76|
|Bottom of the Barrel Special Situation Portfolio|
|Luby's (LUB:NYSE)||Feb. 27, 2002||$6.80||$6.22||9.32||1.49|
|*Average price on date of mention.
**Prices adjusted for 3:2 split on Feb. 20, 2002
Source: Thomson Financial/First Call, TSC Research
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