HSOA – Q4 2006 Earnings

By: ispeculatornew
Date posted: 03.25.2007 (12:00 am) | Write a Comment  (0 Comments)

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HSOA – Home Solutions of America (Nasdaq) (Closing Price on Friday 3/23/07 – $4.99)

Home Solutions of America reported disappointing results for Q4 06 on March 16 but they gave decent guidance for next quarter and in the last few weeks they have announced new contracts.

HSOA had earnings of 0.05 per share on revenues of 34.7 million. The lowered numbers were blamed on delays in funding for the Gulf Coast area and on weakness in the housing sector. Fourth quarter results were also impacted by one time charges.

For next quarter they gave guidance of revenues from 35 to 40 million and earnings of 0.09 to 0.11 per diluted share. If they only make 0.09 next quarter it will be an improvement of a penny over the corresponding quarter last year. If you assume they only make 0.09 the next four quarters HSOA will have a forward PE of 14 with Friday’s closing price. That is pretty cheap.

HSOA also announced they are going to provide guidance and update their backlog on a quarterly basis next year. This and the recent contract announcements show that HSOA is starting to provide a lot more clarity about their revenues and earnings. This is a very positive development and detracts from the shorts argument that HSOA is being less than truthful with their financial numbers.

The short interest in HSOA is still very high (34% of the float as of Feb. 12 according to yahoo finance) and I believe this could be a major driver of share appreciation in the future. I think the majority of shorts are not going to cover unless the share price capitulates. I don’t see this happening and many factors in the future could trigger a short squeeze.

I believe HSOA has been conservative with their guidance and I think there is a good chance they will exceed their numbers, especially if the reconstruction of the New Orleans area starts to pick up. Hurricane season is also approaching and HSOA will benefit if a hurricane does hit.

I think HSOA is still a good speculative buy and I would recommend accumulating more shares at the current price. I am going to lower my cost basis with Friday’s closing price.

Disclosure: I currently own shares of HSOA.

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