Force Protection ( FRPT) knows how to treat its allies. Just look at the favor the maker of blast-resistant military trucks did for some of its investors last month. Last month, the South Carolina-based defense contractor quietly inked a joint venture with heavyweight military supplier General Dynamics ( GD). But just before announcing that key deal to the public, the company raised $153 million by selling stock at the sharply discounted price of $11.75 a share in a private placement. Those 13 million shares, representing roughly one-quarter of the total outstanding, have already delivered phenomenal returns. At recent prices, private placement buyers are up more than 80% over four weeks. But they aren't the only investors who have become avid fans of Force Protection. The company's stock has risen 30-fold over the last year as fans catch on to the promise of its heavy-duty gear amid the war in Iraq. The stock could soon get even more popular: Force Protection is due to move its listing to the Nasdaq from the over-the-counter bulletin board next week. Some observers clearly believe the company has big things ahead of it. "Within the next month, we expect to see the largest contract yet for
mine-resistant, ambush-protected vehicles to be awarded by the U.S. Marine Corps," SunTrust analyst Chris Donaghey wrote. In starting coverage Friday with a buy rating and $31 price target, he said he believes the company can generate $1 billion in annual revenue under the deal.
But Massachusetts investment strategist Peter Cohan has his doubts. Last month, Cohan notes, Force Protection announced problems with its past financial statements. Normally, he says, the Nasdaq sends out delisting notices -- not listing approvals -- when companies face restatements. Cohan questions the timing behind Force Protection's recent private placement as well. Quite simply, he wonders why Force Protection sold its last round of stock so cheaply when -- based on the obvious value of the General Dynamics deal -- it could have waited a bit and sold less stock at higher prices instead. Both Force Protection and its underwriter indicated that the company needed swift financing to meet surging demand for its products. But "the company left a huge amount of money on the table," insists Cohan, who has no position in the stock. "Why did they do that? To me, it seems unfair to the public shareholders." The stock was trading at around $14 when the private placement went through. Shares were rising $1.42 Friday to $21.40.
Force Protection has distinguished itself by claiming that no soldiers have died while riding in its blast-resistant vehicles. The company has seen its revenue -- and its stock price -- soar as a result. So far, Donaghey estimates, Force Protection has delivered about 350 vehicles to the U.S. military. But that number could explode, he predicts, as the government follows through with plans to order thousands of MRAP vehicles going forward. Donaghey believes that Force Protection's revenue, which more than quadrupled to $42.2 million in the third quarter, could rocket past $1 billion next year if that happens. "It's not hard to sell that concept to investors," Cohan says. "Maybe the stock is going up so much just because of the story." But Cohan recalls a similar situation that brought some pain to investors in the end. He highlights Taser International ( TASR) as an example. After trading below $5 for years, Cohan says, Taser's stock suddenly took off as investors grew increasingly excited about the company's product. Taser makes electric stun guns that allow police offers to stop suspects without killing them. Banking on huge demand for the guns, Cohan says, investors pushed Taser's stock above $30 a share a couple of years ago. However, he says, the story soon soured amid rising safety concerns over the weapons, and the stock lost most of that ground. The shares fetch around $8 now.
Cohan worries that Force Protection could turn into another Taser down the road.
Paul responded with a high-profile lawsuit against the Clintons. However, The New York Sun reported last year that a judge has since dropped Hillary Clinton from that case. Force Protection's own history sounds rather mild in comparison. The company previously operated as Sonic Jet Performance, a boatmaker that hit rough waters in its early years. Frank Kavanaugh, a fund manager and current Force Protection chairman, reportedly stepped in at that time to protect his investment. Kavanaugh has since pocketed millions by selling loads of Force Protection stock in recent months. "Former management lied to him," says Marc Robins of Catalyst Financial Resources, hired by Force Protection to handle "investor awareness" for the company. "He took control, sold the assets, bought the truck company and ran it for five years. ... I would not be too concerned about what the company did before March 2005 -- when it became a real company." But Cohan, for one, would have paid little attention to the company even then. "I've never bought a company on the bulletin board; I don't track them," he says. "But for a company to go from the bulletin board to being a real company -- with a real stock -- seems very rare. I get the feeling that very few companies have managed to do what this company has apparently done. "It's an interesting transformation, to say the least."