Friday, January 16, 2009

My Letter To Dataram (DRAM)

Members of the Board,

As a shareholder, I feel that I need to occasionally share my thoughts with you, my elected representatives, on the happenings of our company. As you know, in recent quarters, our company's stock price has been hit hard by the effects of a slowing economy, frozen credit markets, and skittish investors. However, this market valuation seems to reflect little of the inherent and intrinsic value of Dataram. Today, when I briefly spoke with a member of management, I asked him if the board had plans to repurchase any of our common stock, he stated that to his knowledge, there were no such plans, and that the company is still going on with it's previously disclosed plans of expanding through acquisition.

While I am in favor of the company expanding, I am against acquiring any companies at this present moment; this is due to the fact that Dataram common is trading at a significant discount to it's cash minus all balance sheet liabilities. While we all hope that this suppressed share price is temporary, the market is not valuing virtually any and other company at such a discount to it's tangible worth. With this being the case, we must jump at the chance to repurchase shares on the cheap.

It is a fundamental lesson in business and finance schools around the world that cash is matter of fact, whereas, speculation of other companies worth or the value of a patent is significantly harder. With a market capitalization of $11.26 million versus cash of $16.02 million (quite literally 70 cents on the dollar), it seems that the market as a whole, does not feel that our company will be able to acquire another company in a manner that will help earnings... in fact, the market must feel that presently stated plans will burn through significantly more cash than they will produce!

For these reasons, I strongly urge the board to enact an aggressive share repurchase plan. As previously stated, a repurchase plan executed at the current market valuation of the company, would be the same as purchasing $1 dollar of cash for approximately 70 cents of common stock. Such a plan would make shares rally, significantly improve earnings per share, and show that the board is extremely confident in both the company's short term liquidity and it's long term operational excellence.

In line with understanding that the company needs significant reserves of cash, a buyback plan of $6 million dollars would leave the company with well over 2 times the cash that it had in the quarter ending in July of 2002-roughly the same time in which the tech bubble had fully deflated. Despite this, it was a time when the company's stock was trading at a significantly higher level- despite having half the revenues and significantly lower earnings than at present.

Once share price recovers to a level that is at least that of our cash, it would be a more appropriate time to continue expanding through acquisition.

To better share performance,

-Jeffrey Moore

1 comment:

ShadowStock said...

Excellent points and as always very well written

DRAM could easily justify a share buyback just to soak up options that have diluted the common shareholders. Shares outstanding were 8,465,472 (NI 931,202/EPS .11) as of 07/05 and increased to 9,827,775 (NI $393,111/EPS .04) as of 08/08 for a 16% increase.

The only rational for not doing a buyback is if management has concerns about their future competitiveness.

Per share Data

Price = $1.27

Based on prior 12 months

Per Share Amounts
Cash = $1.81
AR = .42
Total liabilities per share = .22
Sales = $3.36
GP = $1.29
CFFO = .08
FCF = .02