Eternal Technologies 3Q

OMG, stock price tanked 32% today on 3rd quarter earnings... woe is me! I guess you really can't foresee these things. After a fateful long and arduous climb up over the past couple of weeks, we are right back where we started with this company--0.50, no gains and no losses... yet.

Now the earnings isn't exactly spetacular, especially compared to the figures from the same period last year in Q3. Some notable failings are: revenues decreased by 4m or 44.6% to 5m from 9m. Gross margin loss on sale of sheep of 17.3%. Leaving a EPS of .03 compared to .09 same quarter last year.

But should we really be worried?

If we take a look at the fundamentals again, this slow-down doesn't really seem to be anything out of the ordinary. Now, it's very easy to frame this company in a growth perspective--as in--well, the market expected the moon and now they have been failed. Punish this stock because it didn't live up to its expectations for the quarter. Yet, if we look closer, this stock shouldn't have been punished this much. After all, quarterly revenues and earnings are supposed to be sporadic... management discussed this throughly in previous statements. This is especially true when it comes to quarterly earnings, where the breeding cycle for animals and the demand for meat isn't too consistent over time. The markets love consistency and stability more than anything, but ETLT has failed this requirement this quarter because most of its contracted revenue did not occur from the months of June to September.

We should not consider this a failing though.

While 3Q earnings doesn't seem to live up to the legacy of the company. A 15m dollar contract "recognized mostly in the third and fourth quarter" is probably now going to be mostly recognized in the 4Q instead, making the REAL catalyst for growth in this company a year-over-year report or the 4Q report rather than this current quarterly report. In fact, year over year numbers have already beaten last year's in just three quarters. Meaning, if 10m in revenue is realized in 4Q, that will give us a year over year increase of over 30% in sales.

Not to mention, the cash position is probably going to increase even more.

I'm not without my due share of skepticism, however... but here is a summary of why I still like the company:

1.) 4Q Earnings will now come from high-margin Embryo transfers instead of meat sales
2.) $3m in cash have just been collected from accounts receivables, and 7m accounts receivable is still in the pipeline for collection over the next few months.
3.) Cash position is now $24m
4.) Costs are variable, so even though sales are down, ETLT still raked in 1.5m in earnings this quarter.
5.) Year over year increases and more news releases will be kinder to the stock in the future.

The stock is now trading at around 14m again... keep in mind they've actually EARNED 1/10th that this quarter, and will be expected to earn more in the 4Q... now, that fat cash position is still very attractive and real too. 14 million dollars to buy into this opportunity. Sounds like the stock is a great deal again...

This might be crazy, but I'm willing to place more bets now that I've seen the potential over the past few weeks.