INFS -- First Look

Initially attracted to the stock for the following reasons
-James Altucher posted on his Daily Blog Watch that Caxton Associates announced that they have accumulated an 8.9% position in the stock and will be acting as an activist shareholder
-$1.96 per share in unrestricted cash & equivalents and no debt, stock price at $2.60
-operating CF as reported on FCF Statement substantially higher than reported GAAP EBITDA and Net Income
-great products, awful financial performance

Currently
Share Price: $2.44
Market Value: $97M
Enterprise Value: $23M
Investment Type: Turnaround Situation

InFocus Corp. (INFS) is a developer of projectors used for business, education, and home entertainment. The company has a spectrum of products retailing from $500 to over $10,000. In the latest annual report the company uses such words as “industry pioneer,” “worldwide leader,” and “premium.” The company also states that they have the largest installed base of projectors compared to anyone in the industry. While all of these statements might be true I have a hard time assigning such praise to a company that has not reported twelve months worth of positive EBITDA since the third quarter of 2002.

INFS was a high flying tech stock in the “good old days” with peak revenue of $887 million in 2000 and EBITA of $97M in that year. Share price in early October 2000 hit an all time high of $56 per share giving the company a market value of $2.3 billion. The big boost to sales in 1999 (sales up 125%) and 2000 (sales up 29% YoY) came from the growth of “ultraportable” and “microportable” projectors that were above 1,000 lumens and could be carried around and attached to laptops. The first ultraportable projectors were introduced in Q1-1999 and by 2000 accounted for almost 80% of sales.

Don’t know what a “lumen” is? Basically, higher lumen count = brither colors http://en.wikipedia.org/wiki/Lumen_(unit)

Oh how the mighty have fallen …..

In the latest fiscal year ended December 2006, the company reported revenue of $375M and EBITDA of negative $29M.

While it’s not hard to understand why revenue fell by a third between 2000 and 2003—business spending dried up and even the best tech firms experienced similar problems—it is imperative to understand why revenue has not recovered with the economy.

In the last six months there has been substantial developments with the company. Caxton has raised their stake to almost 12% of oustanding share. In February 2007, the company allowed Caxton to nominate 2 directors to the board in order to prevent a proxy fight. INFS unsuccessfully put itself up for sale. The CEO retired in May. And on June 6th, Caxton appointed 2 more directors to the board giving it effective control of the company and the ability to hand pick the new CEO.

As always, I will continue with my analysis by laying out a bullish and bearish case and make a final decision on whether to add this stock to the Watch List Portfolio or the Best Ideas Portfolio.

* DISCLOSURE: I or accounts I manage may be long or short any and/or all stocks mentioned in this post. This is not a recommendation to buy or sell any security. For informational and educational purposes only.