Anyone who does a lot of highway driving might know about today’s pick. Cobra Electronics (CBRA) is a leader in radar detection products but also produces two-way radios, citizens band radios, marine electronics and mobile navigation systems for the consumer market. The company has definitely seen turbulent times over the years, 2006 among them. Last October the company bought a British firm, Performance Products Ltd., makers of the Snooper line of mobile GPS navigation systems. I believe that this highly rated group of products will lift Cobra out of the malaise that it sits and back to profitability. The first quarter results certainly provide hope.
The acquisition of Performance Products brings a complimentary product to the mobile navigation group with significant brand equity (Snooper), excellent management that are staying on to work with the company to build this potentially large and profitable component of the business, and it will be accretive to earnings in 2007. What more could shareholders ask for? Well, profits for a start and then a little movement in the price of the stock for another. This stock went public in 1990 and in the 16 years since has managed to produce only 26 percent in total returns. In comparison, the NASDAQ in the same period returned 490 percent. Clearly, an investment in Cobra Electronics is a speculative one.
Here are the Top 5 reasons to like this stock:
- The company has a 70 percent market share, and growing, in radar detection devises in the United States. If you’re looking to avoid detection, Cobra is the supplier of choice.
- With the addition of the Snooper line, the company has become a bigger player in the mobile navigation market. Now, in addition to the NAV ONE line, Snooper gives them better distribution in the European market.
- The company paid £20 million for the Snooper line, whose operating margins are double Cobra’s existing mobile navigation products. This acquisition will pay for itself in less than five years.
- All areas of the company with the exception of the mobile navigation business, which is only two years old and very competitive, are leaders in their markets. The company knows how to gain market share.
- Excluding 2006, the company’s financial statements over the last 10 years have shown a profit. This unique situation will reverse itself in 2007.
Cobra’s stock price has done little in the past few years. The risk here is not that it will go down in price but rather it will move sideways for another five years. It’s all about opportunity cost in this situation. However, they do pay a $0.16 cent dividend to help calm the nerves until it finds its way out of a severely moribund state. No risk, no reward.
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