Bolt Technology: Will Lightning Strike Again?

Regular readers of this blog know I routinely sift through SEC filings for stocks in the MFI universe that may be potential targets of activist investors. While I haven't made such stocks a significant focus of my personal approach to MFI, I haven't shied away from them, either. There's just something fundamentally intuitive, even exciting, about investing in companies that are potential acquisition targets, particularly if you have the chance to get in on them before they have been brought to the collective awareness of the masses.

This past weekend, this screen revealed an interesting opportunity in Bolt Technology (NASDAQ: BOLT), a Connecticut-based oil services company. Bolt is a developer of seismic energy sources (air guns), seismic energy source controllers and synchronizers, and underwater connectors (cables) used in offshore seismic exploration for oil and gas. The company has what appears to be a strong core competency in the design and manufacture of air guns.

Despite its leadership position, Bolt is a relatively small company. It has a stock market capitalization of just $170 million on trailing twelve-month sales of only $61 million. Contrast this with Bolt's main competitor, ION Geophysical (NYSE: IO), formerly known as Input/Output, which has a market cap of $1.1 billion on trailing twelve-month sales of $713 million. While Bolt has a small segment (roughly 7 percent of 2007 sales) that produces industrial products used in other industries, it's essentially a pure play on marine seismic exploration. By contrast, ION Geophysical has a large chunk of its business, roughly 40 percent of 2006 sales, in land imaging systems.

A comparison of key ratios, with data courtesy of Reuters.com, is as follows:

RATIO	BOLT	IO
Valuation Ratios
P/E Ratio (TTM)	12.74	31.85
Price to Sales (TTM)	2.80	1.52
Price to Book (MRQ)	3.56	2.28
Price to Tangible Book (MRQ)	5.13	3.63
Price to Cash Flow (TTM)	12.35	10.35
Ownership
% Owned Institutions	69	95
Growth Rates
Sales Growth (MRQ) vs Qtr. 1 Yr. Ago	42.12	25.93
Sales Growth (TTM) vs TTM 1 Yr. Ago	51.10	41.62
Sales - 5 Yr. Growth Rate	22.91	43.16
EPS Growth (MRQ) vs Qtr. 1 Yr. Ago	50.58	20.00
EPS Growth (TTM) vs TTM 1 Yr. Ago	80.69	47.80
EPS - 5 Yr. Growth Rate	40.13	NM
Financial Strength
Quick Ratio (MRQ)	3.56	1.51
Current Ratio (MRQ)	5.84	2.22
Total Debt to Equity (MRQ)	0.00	0.05
Profitability Ratios
Gross Margin (TTM)	45.70	28.46
Gross Margin - 5 Yr. Avg.	42.31	28.28
EBITD Margin (TTM)	32.60	17.59
EBITD - 5 Yr. Avg.	21.66	13.32
Operating Margin (TTM)	32.15	8.55
Operating Margin - 5 Yr. Avg.	20.83	5.04
Pre-Tax Margin (TTM)	32.15	7.78
Pre-Tax Margin - 5 Yr. Avg.	20.83	4.01
Management Effectiveness
Return On Assets (TTM)	28.22	6.25
Return On Assets - 5 Yr. Avg.	12.59	2.43
Return On Investment (TTM)	32.55	8.46
Return On Investment - 5 Yr. Avg.	14.23	3.09
Return On Equity (TTM)	32.98	9.52
Return On Equity - 5 Yr. Avg.	14.35	3.59

By examining the above data, it's clear to me that Bolt is the superior investment, with accelerating growth and returns to shareholders that is extremely attractive. While the stock isn't as attractive from a valuation perspective, when you factor in the superior growth and profitability, it seems to be trading at reasonable multiple ... and although it operates in a cyclical industry, at a share price of just under $20, it's well near the low end of its 52-week range of $13.75 to $39.57.

To add a little extra intrigue to Bolt's story, Sandler Capital Management filed a 13-D last Friday, in which it disclosed a 5.25 percent stake in the stock, further stating (in "Item 4" of the filing) that they "plan to communicate with management of the Issuer to offer suggestions with respect to the direction and future prospects of the Issuer and discuss strategies for maximizing shareholder value." Now, while I don't know a whole lot about Sandler, other than they manage both hedge and private equity funds, what I do know is that they have a pretty good record of companies for which they have issued 13-D filings being taken out. Two of the last four such companies, Pioneer Companies (a former MFI stock) and Penton Media, were subsequently acquired. Now, who's to say that's what Sandler has in mind with Bolt -- it could just as easily be a suggestion they divest their non-core segment, for example -- or whether any overtures they may make to management will be successful? It's nothing I would bet the house on, but I think it adds an interesting side story to an MFI stock that is attractive on its own merits.