Earnings Season: AMS reports results

Back from two weeks of hectic travel, I have some time to go over my investment portfolio. I like the way it is set up right now. I am out of most of the more dangerous plays I was in over the past 12-15 months, especially in the financial sector. Most of what I have now is energy, primarily Canroys, emerging market funds and small cap high tech and medical plays.

Because the small caps typically report 4-6 weeks after the end of a quarter, it is just now that we are able to review the 3rd quarter results for the small cap stocks, including the Canroys. I will go over my favorites the next few days, in separate reports. From what I have seen, I am very happy with the performance of my picks.

First, I would like to take a look at American Shared Hospital Systems (AMS). This "microcap" has a market cap of only around $8M. It has 5M shares outstanding, but $10M in cash. So, it has more cash than market cap, which would be great under any circumstances (some of this cash will be used to service loan payments). Today (Monday) you can buy a share for $1.50, give or take. Being this small, it takes very little buying or selling action to move the price. A buy of $5,000 for 3500 shares, will have a material impact on price. The price moves by 10-20% almost every day. It was as low as $1.01 on Oct. 10.

But there is a lot more to this company than cash on hand. It also owns many radiation therapy machines of different types, which it has leased to major cancer treatment hospitals for their tumor therapy centers. Currently, AMS has $45M of assets on its balance sheet for equipment at medical centers, this is net of depreciation. So, on the $8M market cap, there is a lot of financial leverage in the form of equipment owned and under lease. But there is almost no risk of default considering to whom that equipment is leased. The leases cover the depreciable life of the equipment. There is zero residual value at the end of the term.

Against the leases, securities and cash is $22M in long term debt and another $13M in short term or current debt that is completely covered by cash on hand. This all leaves a very healthy $20M of shareholder equity or book value (assets less liabilities) that is 1/2 in cash. With the current market cap of $8M, AMS is selling at less than 50% of tangible book value, which is cheap in any era, the 1930s or the 2000s. The Directors like their own stock and announced on the investor conference call they will buy back 500K shares, or 10% of stock outstanding, which will support the stock price.

Oh, one other thing, there are $1.5M in preferred shares listed under assets. These are the Still River Systems shares and account for about 20% of SRS's equity. SRS has a decent chance to become a major player in radiation therapy, alongside Siemens, Varian and Phillips Medical. That position alone could someday be worth more than 10X the current AMS stock price ($80M). This stock is a bargain by any standard. Check it out: http://www.ashs.com/investors.html