Buy MNT (Short-Term Trade) - Yaser Anwar

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Buy MNT (Short-Term Trade)
Jun 03, 2007 08:29 PM UTC

Yaser Anwar

Return	Risk
-10.36%	HIGH

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Via Investment Ideas by Yaser Anwar:

Rationale: 1) With 16% of its float sold short, or 6,537,400 million shares, with 4.3 days to cover and average daily trading volume (3m) of 888K, it will take 7.36 days to cover the entire position.
2) On a fundamental level MNT is turning around, evident by the fact that inventory levels were 150-170 days for the quarter ending May, vs. 200 and 548 days in 06 and 05. Furthermore, efficient mgmt has led to a shrinking cash conversion cycle, 110 days from 150 and 400 in 06 and 05.
3) On April 20th, MNT plunged 5 points on lowering guidance 07 guidance, which I believe was overly excessive. Why? Having an earnings surprise average of near 20%, analysts I believe got overly bullish.
On May 16th, MNT announced expectation of higher sales in 08. It is possible that management is playing the UPOD- Under Promise Over Deliver, game, seen as they have 96% profit margins and close to 12 bucks in cash per share with little debt, and quarterly earnings growth of 50%+
4) While I'm a fundamentalist first, I do look at charts. MNT, on a 3-year chart, is forming a double bottom. If you look at the annotated chart attached below, it is clear that such drops have been buying opportunities.

Reward/Risk: 2.5 to 1. The average 5-year multiple for MNT is 35. Currently it's trading at 32, and taking the FY 08 (ending in May) EPS estimate of 1.3, I come to the price target of 45. I would place my stop loss at the 52-week low of 38. This trade would give me a potential 5 point upside and 2 point downside.

Ok- I'm serious about my hiatus! Don't want to get in trouble!

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