June 14, 2004 - 7:24pm EST by
2004 2005
Price: 10.80 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 125 P/FCF
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 0 TEV/EBIT

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I am recommending purchase of AMX Corporation, the leader in network systems which through the use of touch-panel screens control myriad electronic devices/brands (computers, stereo, lighting, etc.) which would otherwise be incompatible. Through the excellent leadership of CEO Bob Carroll, AMX escaped ruin and in fact has prospered, reporting a profit in every quarter following his appointment. In November 2001 when Carroll was asked by the board to take control, AMX was bleeding red ink and in trouble with its bank and suppliers. Though the stock is up from the mid-$2's since then, I believe the company is just hitting its stride in a market which is developing rapidly.

AMX product is really high-end stuff. Traditionally you would find their devices in the nicest of corporate board/media rooms, and to a lesser extent in ultra expensive homes -think Gates, Oprah, and Tiger Woods. For greater detail as to their offerings which I have only touched on, please see

When Carroll took over, he eliminated more than half the workforce, slashed the product line offerings by nearly 70%, and rebuilt relationships with distributors. The company now has no debt, and approximately $9.5mm in cash. In late April's release of Q4 and FY 2004 earnings, AMX reported its very first period of meaningful revenue growth: Q4 year-over-year revenue increased 19%, FYyear-over-year revenue increased 4%. In contrast, most quarters prior saw a slight revenue decline. I believe this past quarter is an inflection point in AMX's business, though if I'm incorrect, I believe you have some support in the business and stock provided by the seeming geometric increase in electronic device content in enterprises and homes, an improving economy, and anecdotal information I've heard since Infocom took place last week.

2004 revenues grew 4% to $85.9mm, EPS grew 44% to $.50. Gross margin improved more than 5% to 53.6%. Q4's revenue increase of 19% to $22.9mm was comprised of commercial sales at $19.4mm (5% increase domestically and + 25% internationally) and residential sales which grew 26% to $3.5mm. EPS in the quarter came in at $.16. The only sort of estimates I've seen are more the "off Wall Street" variety, and generally estimate around $.67 per share for 2005 EPS on revenue growth of 12%. I believe these numbers could prove to be very conservative.

With a forward PE of around 16, and EPS growth of 34% AMX is not painfully expensive (unless I'm wrong!), and though it's not cigar-butt cheap, I believe it can appreciate nicely based upon what I believe will be a growing top line lead by excellent management. One former board member who remains close to the company told me that Carroll and Executive VP Rashid Skaf could be running a company many times AMX's size; that they and their team are without peer. I'm not comfortable with a relative valuation comparison, for while AMX resides in the networking market, there are not pure comps, and it's peers in this group are very expensive for the most part. I'm betting that AMX will naturally grow it's enterprise and residential business with the improving economy, increased device content in their target markets, and development of new products and markets. To that end, I'll briefly discuss these last two points. At Infocom held in Atlanta last week, I understand that management showed a "product in a box" solution which though initially will be rolled out to smaller businesses, will also be pushed into their residential sales channel. Management and distributors that my contact visited are ecstatic about this product, and have never been so sanguine about the base business, both domestically and internationally. Smaller business, and sub-Centi millionaires will soon be shown an AMX product that works well for them. Finally, under new market development, I believe AMX might be able to sell their product to retailers who might employ sophisticated electronics (again: lighting, computers, music, etc.)to operate their businesses. For example, I am aware that Apple uses AMX product in all of their retail stores. Apple uses the product to monitor and control most of the functions inside of the retail environment. Apple is clearly a leading adopter, and though I'm not sure of the dollar content of AMX product in the stores, I do think it is a terrific data point, and one that is not impossible to extrapolate into increased use by the other retailers (Gap? High-end stereo(too many to list)? Restaurants/night-clubs?; etc.)

Q1 is historically a softer quarter for the company. However, I think the business is building, and though I do not twish imply Q1 will be lights out, it might break the traditional trend.


Crestron, a privately held company is the only pure competior to AMX and has been doing a good job. According to an interview with a company spokesman, the company has seen 45% sales growth in the last two years. Anecdotally, I understand there has been a defection recently of distributors from Crestron to AMX, and am obviously hoping AMX will be joining Crestron in the revenue growth area. For what it is worth, I also understand AMX is considered the superior product tehcnologically.

Taxes. AMX will become a tax payer in FY 2006 (due to losses incurred during their disastrous forray during the bubble to broadband consumer devices under the name Panja). If you're looking at this on a PE basis you have to be aware of this issue. Perhaps revenue will grow more than sufficiently to make up for tax paying status, though AMX also has the ability to make an accretive acquisition which the current team has done given their financial flexibility.

Intel has announced it's plan to spend $200mm toward the development of digital home devices to drive the "convergance of personal computer and consumer elctronic devices" on one network. This is all I know at this point, but it could be a problem...or perhaps an opportunity.


Continued top line growth.
Increased penetration into new markets/customers.
Coverage by an IB.
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