Force Protection's ( FRPT) weeklong selloff accelerated Monday morning after a rival scored a big military truck order. Force Protection shares dropped 7% after rival Navistar ( NAVZ) announced a $414 million deal to build trucks for the Marine Corps. The selloff added to Force Protection's recent woes and comes as a raft of insiders could be gearing up to sell shares, adding to pressure on the stock. The Ladson, S.C., defense contractor saw its shares drop 16% last week, including a 5.9% decline Friday that pushed the stock's closing price below $20 for the first time in three months. Rival defense contractors have been gaining on Force Protection in the race to build armored trucks to protect U.S. troops overseas from bomb attacks. Recently, rivals such as Armor Holdings ( AH), the U.K.'s BAE Systems and Navistar have fielded major orders for the so-called mine-resistant, ambush-protected vehicles. But gains by rival truck makers could be only the start of Force Protection shareholders' worries. Last week, Force Protection filed with regulators to register for sale 13 million shares purchased by participants in a late-2006 private investment in public equity, or PIPE, deal. If the PIPE investors choose to sell, almost 20% of Force Protection's stock could suddenly flood the market. Force Protection still ranks as one of the biggest winners under the multibillion-dollar MRAP program, and those gains have sent its shares -- which traded for mere pennies as recently as the end of 2005 -- as high as $31 apiece over the last year. But the company has failed to monopolize MRAP orders, as so many had expected, and seen its stock suffer as a result. Even at today's prices, PIPE investors could realize huge gains if they sell their Force Protection stock right now. Back in December, they paid just $11.75 for their shares -- which fetched almost $15 on the public market at the time -- and have, therefore, seen their investment almost double in value. Meanwhile, other sellers have pressured the shares as well. By mid-June, bears had sold nearly 14% of the company's stock short in anticipation of a decline. Before that, then-Chairman Frank Kavanaugh kept dumping loads of company stock -- sometimes at near-peak prices -- just ahead of his resignation from the board. Most analysts, still bullish despite Force Protection's recent setbacks, expect regular investors to do just the opposite. But at least one of them, Josephine Millward of the Stanford Group, stands out from the pack. Although Millward does not even formally cover Force Protection, she keeps warning investors about threats to the company. Millward sounded her latest alarm on Wednesday, following a surprise MRAP contract for Armor Holdings that she had hinted at some time before. "In our view, Armor Holdings' MRAP win is negative for Force Protection, as the company had not expected more competition," Millward noted. "In addition, the military makes MRAP procurement decisions entirely based on its existing production capacity once a company has passed the performance test. All four of the MRAP vendors appear to have similar capacity at this point." Thus, Millward sees no reason to favor Force Protection as the four companies battle for $1.5 billion worth of new MRAP funding over the next several months. Nor does she sense that Force Protection will enjoy any particular advantages after that funding runs out -- and gets replaced by an even bigger MRAP II program in the future. Indeed, Millward predicts that Force Protection will face additional competition from the likes of Ceradyne ( CRDN) and Lockheed Martin ( LMT) instead. Ceradyne, in particular, has recently emerged as a surprise favorite for early MRAP II awards. The company boasts a new MRAP vehicle, known as the Bull, that is uniquely capable of surviving sophisticated "explosively formed penetrators." As it hands out MRAP II awards, the U.S. military will be seeking just this sort of protection. Last week, Wedbush Morgan Securities analyst Al Kaschalk noted that Ceradyne "continues to make progress and receive favorable test results on its high-threat vehicle solution." If the company fares well in additional trials, he added, "an initial contract for the Bull could immediately follow." Kaschalk is cautious about Ceradyne's stock nonetheless. He has a hold recommendation on the shares, and his firm makes a market in the securities. For starters, Kaschalk sees modest demand for vehicles like the Bull early on despite the escalating threat posed by EFPs. Meanwhile, he worries about the sustainability of Ceradyne's high margins and its heavy dependence on the government -- which accounts for more than 70% of the company's business -- as well. Of course, Force Protection relies on the military for virtually all of its business. But company fans see only opportunities where others see risks. For example, C.E. Unterberg Towbin analyst James McIlree views MRAP II -- despite its calls for additional players and enhanced vehicle protection -- as yet another program for Force Protection to dominate. "Force has already tested (and, they maintain, passed) EFP tests," McIlree wrote on Wednesday. "Rather than opening up the field, we regard this as potentially restricting the field and a positive to FRPT since they again lead the pack." McIlree issued his bullish report after the government last week found some new money to spend on MRAP I. He seemed to warn investors about staying on the sidelines -- and missing out on possible gains -- in the process. "We view the $1.5 billion potential reprogramming action by the Department of Defense positively and reiterate our buy recommendation and $32 price target" on Force Protection's stock, he wrote. "The reprogramming action also points out the danger in waiting for the 'perfect' time to buy Force based on the registration of the
PIPE shares, the potential for competitive orders ... the reporting of the quarter -- or whatever worry du jour exists." McIlree's firm managed the PIPE deal for Force Protection. His latest note appeared just one day before the company filed the registration necessary for PIPE investors to begin selling their shares.