ADSX - Applied Digital Solutions
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sellers of the stock here at $6.88
Thursday, December 09, 2004 8:17 a.m. EST
Dear Subscriber to TheStreet.com Stocks Under $10,
There are a lot of great stock plays in the Under $10
space that we examine every day, and we are always on the
look out for new names that bring value to our model
portfolio. But from time to time, our search for the next
big winner uncovers a stock that could destroy your
performance, and bring you a lot of heartache along with
it.
We have found one of these potential disaster stocks in
Applied Digital Solutions (ADSX:Nasdaq), and we would be
sellers of the stock here at $6.88 a share, near its 52-
week high.
Applied Digital, through its basket of acquired
subsidiaries, which includes publicly traded Digital Angel
(DOC:Amex), markets advanced security products that use
radio-frequency identification, or RFID, and global
positioning satellite systems, or GPS. Many of Applied
Digital's products are used to store and deliver
information that is used to monitor and protect
wildlife and our food supply, among other applications. In
addition, its voice, video and data networks are used to
provide secure communications between government offices.
The company, though, recently gained notoriety for one of
its newer business ventures. In October the Food and Drug
Administration approved the company's implantable radio-
frequency identification microchip for human use. The
device, called VeriChip, was acquired through a licensing
agreement with Digital Angel that runs through 2013. Only
the size of a grain of rice, VeriChip is implanted under
your skin and contains an ID number that is used to access
your medical history, including possible drug
interactions, diseases or anything that could determine
the way a doctor treats unconscious patients who are
unable to provide any of their own information.
VeriChip is cutting-edge technology that has the potential
to save lives and decrease the critical time needed for
doctors to determine a course of treatment in life-
threatening situations.
But we believe other factors need to be considered besides
the technology when putting money at risk. The chip's
practical usefulness, for one, along with Applied
Digital's poor operating performance record and the
societal impediments in its path, do little to instill
confidence and makes us want to stay clear of this story
for now.
After months of languishing near the $2 level thanks to a
reverse split, Applied Digital's shares have received a
big bump from VeriChip's recent approval by the FDA.
The company's shares, which barely traded prior to the
announcement, have gained some 160% in less than three
months, with millions of shares changing hands daily.
Applied Digital is being valued at $303 million by the
market, a number that implies lofty expectations.
The trouble is that Applied Digital generates most of its
revenue from the sale of voice, video and data networks,
not RFID tags, and the human-implantable chip market is
unquantifiable at this time and may never have a
meaningful impact on the top line. Of Applied Digital's
$92 million in revenue in 2003, less than half can be
attributed to its tagging business, and that was from its
role in tagging animals to monitor things like food safety
and the environment for customers like the U.S. Army.
Applied Digital didn't become an RFID play overnight. The
company was founded in 1993 and has grown through more
than 50 acquisitions. This "roll-up" strategy catapulted
the company's sales, which reached their peak in the white-
hot e-business market in the late 1990s. Back then,
Applied Digital was providing network technology for the
government and generating $300 million in sales a year.
Like most tech companies, though, Applied Digital saw its
sales fizzle, to under $100 million in 2003. To make up
for
the sales shortfall, Applied Digital racked up debt in the
form of a loan from IBM. In June of that year, a new
management team took the company through a painful
restructuring to help it avoid Chapter 11 bankruptcy, and
found the company a new hot market to exploit thanks to
its acquisitions with its RFID business.
To raise cash to fund its new RFID ventures -- including a
more recent acquisition of eXI Wireless that has a product
to monitor patient wandering and infant protection and
location systems -- Applied Digital recently pulled off a
$9 million private placement that brought its net cash
number to more than $15 million, based on our calculation.
The shares were bought by asset management firm Satellite
Strategic Finance Associates, which has been its largest
investor over the last year, though it is listed as a net
seller of 506,000 shares in a filing at the end of
September. We phoned Satellite to ask about its interest
in Applied Digital, but the money management firm declined
to comment.
Another troubling issue is Applied Digital's management.
The group, which constantly promotes its stock with
bullish press releases about its future and present
business, doesn't seem to have enough confidence in their
abilities to own many shares in their own company. The
company's CEO, Scott Silverman, has less than a 1% stake
in Applied Digital, and he is the largest shareholder on
the management team. He is well taken care of by the board
of directors, though, which approved his $1.67 million
salary in 2003, despite the company's continued weak
operating results.
Applied Digital also has to deal with the Big Brother
issues that come with invasive technologies that
allow others to view personal information electronically.
The company's chips contain sensitive and personal
information, which carries the potential of identity
theft.
These issues are generally overcome when a technology
could really improve the standard of living, but it is
just another bump in the road for this first-to-market
company to overcome.
We are also struck by the lack of coverage for the company
on Wall Street. Not a single analyst covers this stock.
Normally this would serve as a catalyst and would allow us
to take a position ahead of new coverage and institutional
demand for the stock. But in Applied Digital's case, we
believe it signals more a lack of confidence in
management and an unwillingness to get behind the story
given the company's spotty track record.
Normally, we would hesitate recommending selling a low-
dollar stock with a lot of momentum due to the volatility
involved with speculative-concept investments like Applied
Digital's. Just look at the move Mace Security
(MACE:Nasdaq) made earlier this year. Mace, a carwash
turned homeland security company, in April ran to $14 a
share from $2 a share only to have insiders sell boatloads
of stock and send its shares back to $5 today. But the
fuel for big runs like that, usually a large short
interest or daily trading volumes of fewer than 100,000
shares, is not present here with Applied Digital. Only 6%
of the float is short, and that can be covered in one day,
based on the stock's recent trading surge. The risk/reward
is skewed against the longs here.
To Applied Digital's credit, its sales have slowly
rebounded this year, though its operating cash flows have
deteriorated on a year-over-year basis for the first nine
months of 2004. Management has also signed some
interesting supplier deals that will help it bring
VeriChip to the masses. But this story hinges on the
tagging of human beings, and we don't expect that to be a
big market anytime soon. When we overlay the uncertainties
for its product with its confusing corporate structure and
acquisitive nature, we believe the best way to play
Applied Digital is to sell now at the stock's high.
Regards,
The TSC Investment Team
Send email to stocksunderten@thestreet.com
David Peltier and William Gabrielski, writers of
TheStreet.com Stocks Under $10, are research associates
at TheStreet.com.
Mr. Peltier is a contributor to TheStreet.com Save Safe
Plan and maintains the model portfolio for that product.
TheStreet.com is a publisher and a registered investment
adviser. TheStreet.com Stocks Under $10 contains the
authors' own opinions, and none of the information
contained therein constitutes a recommendation that any
particular security, portfolio of securities, transaction,
or investment strategy is suitable for any specific
person. You further understand that Messrs. Peltier and
Gabrielski will not advise you personally concerning the
nature, potential, value or suitability of any particular
security, portfolio of securities, transaction, investment
strategy or other matter. To the extent any of the
information contained in TheStreet.com Stocks Under $10
may be deemed to be investment advice, such information is
impersonal and not tailored to the investment needs of any
specific person.
Past results are not necessarily indicative of future
performance. Investing in the stocks chosen for
TheStreet.com Stocks Under $10 model portfolio is risky
and speculative. The companies may have limited operating
histories and little available public information, and the
stocks they issue may be volatile and illiquid. Trading in
such securities can result in immediate and substantial
losses of the capital invested. You should use only risk
capital, and not capital required for other purposes, such
as retirement savings, student loans, mortgages or
education. As editorial employees of TheStreet.com, Mr.
Peltier and Mr. Gabrielski are restricted from owning
individual securities other than stock or options in
TheStreet.com, Inc.
Dear Subscriber to TheStreet.com Stocks Under $10,
There are a lot of great stock plays in the Under $10
space that we examine every day, and we are always on the
look out for new names that bring value to our model
portfolio. But from time to time, our search for the next
big winner uncovers a stock that could destroy your
performance, and bring you a lot of heartache along with
it.
We have found one of these potential disaster stocks in
Applied Digital Solutions (ADSX:Nasdaq), and we would be
sellers of the stock here at $6.88 a share, near its 52-
week high.
Applied Digital, through its basket of acquired
subsidiaries, which includes publicly traded Digital Angel
(DOC:Amex), markets advanced security products that use
radio-frequency identification, or RFID, and global
positioning satellite systems, or GPS. Many of Applied
Digital's products are used to store and deliver
information that is used to monitor and protect
wildlife and our food supply, among other applications. In
addition, its voice, video and data networks are used to
provide secure communications between government offices.
The company, though, recently gained notoriety for one of
its newer business ventures. In October the Food and Drug
Administration approved the company's implantable radio-
frequency identification microchip for human use. The
device, called VeriChip, was acquired through a licensing
agreement with Digital Angel that runs through 2013. Only
the size of a grain of rice, VeriChip is implanted under
your skin and contains an ID number that is used to access
your medical history, including possible drug
interactions, diseases or anything that could determine
the way a doctor treats unconscious patients who are
unable to provide any of their own information.
VeriChip is cutting-edge technology that has the potential
to save lives and decrease the critical time needed for
doctors to determine a course of treatment in life-
threatening situations.
But we believe other factors need to be considered besides
the technology when putting money at risk. The chip's
practical usefulness, for one, along with Applied
Digital's poor operating performance record and the
societal impediments in its path, do little to instill
confidence and makes us want to stay clear of this story
for now.
After months of languishing near the $2 level thanks to a
reverse split, Applied Digital's shares have received a
big bump from VeriChip's recent approval by the FDA.
The company's shares, which barely traded prior to the
announcement, have gained some 160% in less than three
months, with millions of shares changing hands daily.
Applied Digital is being valued at $303 million by the
market, a number that implies lofty expectations.
The trouble is that Applied Digital generates most of its
revenue from the sale of voice, video and data networks,
not RFID tags, and the human-implantable chip market is
unquantifiable at this time and may never have a
meaningful impact on the top line. Of Applied Digital's
$92 million in revenue in 2003, less than half can be
attributed to its tagging business, and that was from its
role in tagging animals to monitor things like food safety
and the environment for customers like the U.S. Army.
Applied Digital didn't become an RFID play overnight. The
company was founded in 1993 and has grown through more
than 50 acquisitions. This "roll-up" strategy catapulted
the company's sales, which reached their peak in the white-
hot e-business market in the late 1990s. Back then,
Applied Digital was providing network technology for the
government and generating $300 million in sales a year.
Like most tech companies, though, Applied Digital saw its
sales fizzle, to under $100 million in 2003. To make up
for
the sales shortfall, Applied Digital racked up debt in the
form of a loan from IBM. In June of that year, a new
management team took the company through a painful
restructuring to help it avoid Chapter 11 bankruptcy, and
found the company a new hot market to exploit thanks to
its acquisitions with its RFID business.
To raise cash to fund its new RFID ventures -- including a
more recent acquisition of eXI Wireless that has a product
to monitor patient wandering and infant protection and
location systems -- Applied Digital recently pulled off a
$9 million private placement that brought its net cash
number to more than $15 million, based on our calculation.
The shares were bought by asset management firm Satellite
Strategic Finance Associates, which has been its largest
investor over the last year, though it is listed as a net
seller of 506,000 shares in a filing at the end of
September. We phoned Satellite to ask about its interest
in Applied Digital, but the money management firm declined
to comment.
Another troubling issue is Applied Digital's management.
The group, which constantly promotes its stock with
bullish press releases about its future and present
business, doesn't seem to have enough confidence in their
abilities to own many shares in their own company. The
company's CEO, Scott Silverman, has less than a 1% stake
in Applied Digital, and he is the largest shareholder on
the management team. He is well taken care of by the board
of directors, though, which approved his $1.67 million
salary in 2003, despite the company's continued weak
operating results.
Applied Digital also has to deal with the Big Brother
issues that come with invasive technologies that
allow others to view personal information electronically.
The company's chips contain sensitive and personal
information, which carries the potential of identity
theft.
These issues are generally overcome when a technology
could really improve the standard of living, but it is
just another bump in the road for this first-to-market
company to overcome.
We are also struck by the lack of coverage for the company
on Wall Street. Not a single analyst covers this stock.
Normally this would serve as a catalyst and would allow us
to take a position ahead of new coverage and institutional
demand for the stock. But in Applied Digital's case, we
believe it signals more a lack of confidence in
management and an unwillingness to get behind the story
given the company's spotty track record.
Normally, we would hesitate recommending selling a low-
dollar stock with a lot of momentum due to the volatility
involved with speculative-concept investments like Applied
Digital's. Just look at the move Mace Security
(MACE:Nasdaq) made earlier this year. Mace, a carwash
turned homeland security company, in April ran to $14 a
share from $2 a share only to have insiders sell boatloads
of stock and send its shares back to $5 today. But the
fuel for big runs like that, usually a large short
interest or daily trading volumes of fewer than 100,000
shares, is not present here with Applied Digital. Only 6%
of the float is short, and that can be covered in one day,
based on the stock's recent trading surge. The risk/reward
is skewed against the longs here.
To Applied Digital's credit, its sales have slowly
rebounded this year, though its operating cash flows have
deteriorated on a year-over-year basis for the first nine
months of 2004. Management has also signed some
interesting supplier deals that will help it bring
VeriChip to the masses. But this story hinges on the
tagging of human beings, and we don't expect that to be a
big market anytime soon. When we overlay the uncertainties
for its product with its confusing corporate structure and
acquisitive nature, we believe the best way to play
Applied Digital is to sell now at the stock's high.
Regards,
The TSC Investment Team
Send email to stocksunderten@thestreet.com
David Peltier and William Gabrielski, writers of
TheStreet.com Stocks Under $10, are research associates
at TheStreet.com.
Mr. Peltier is a contributor to TheStreet.com Save Safe
Plan and maintains the model portfolio for that product.
TheStreet.com is a publisher and a registered investment
adviser. TheStreet.com Stocks Under $10 contains the
authors' own opinions, and none of the information
contained therein constitutes a recommendation that any
particular security, portfolio of securities, transaction,
or investment strategy is suitable for any specific
person. You further understand that Messrs. Peltier and
Gabrielski will not advise you personally concerning the
nature, potential, value or suitability of any particular
security, portfolio of securities, transaction, investment
strategy or other matter. To the extent any of the
information contained in TheStreet.com Stocks Under $10
may be deemed to be investment advice, such information is
impersonal and not tailored to the investment needs of any
specific person.
Past results are not necessarily indicative of future
performance. Investing in the stocks chosen for
TheStreet.com Stocks Under $10 model portfolio is risky
and speculative. The companies may have limited operating
histories and little available public information, and the
stocks they issue may be volatile and illiquid. Trading in
such securities can result in immediate and substantial
losses of the capital invested. You should use only risk
capital, and not capital required for other purposes, such
as retirement savings, student loans, mortgages or
education. As editorial employees of TheStreet.com, Mr.
Peltier and Mr. Gabrielski are restricted from owning
individual securities other than stock or options in
TheStreet.com, Inc.
-
Visitante
ADSX - Applied Digital Solutions
Desde que o starter a sugeriu em Outubro( http://www.caldeiraodebolsa.com/forum/v ... ht=applied ), comprei uma quantidade ridiculamente baixa, e esqueci...
Já valorizou 56%!
Não resisti a desabafar...
P.S. - Esqueci mesmo; não é tanga. Pena não ter posto mais!
Mas era ridículo apostar forte e feio assim às escuras. 
Já valorizou 56%!
Não resisti a desabafar...
P.S. - Esqueci mesmo; não é tanga. Pena não ter posto mais!
Mas era ridículo apostar forte e feio assim às escuras. - Anexos
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