Computer Automation Recovering : One-Time High-Flier Seen as Good Buy

With the holiday season upon us, could there be a better time than now to adopt an orphan?

The editors of the California Technology Stock Letter, in a newly issued “buy” recommendation, suggest that investors should adopt a few shares of Computer Automation Inc.

A one-time high-flier, the Irvine-based computer maker once traded for as high as $44 a share. But a four-year string of losses that totaled $25 million drove Computer Automation’s stock price to an all-time low in 1985 of just $1.375 a share.

“It is a literal orphan, because nobody wanted it,” said Mike Murphy, one of the San Francisco-based stock letter’s two editors. “Nobody on Wall Street even follows them anymore.”

But, through an aggressive restructuring which left Computer Automation smaller and better focused, the company has managed to bring itself back to profitability. Last month, Computer Automation reported its third consecutive quarterly profit since stemming the tide of the losses.

The $288,000, or 14 cents per share, that Computer Automation reported in net earnings for the first quarter of its fiscal 1987 contrasted sharply with a net loss of $3.6 million a year before. Revenues during the quarter ended Sept. 30 increased 8.2% to $5.3 million, from $4.9 million a year ago.

Although Computer Automation is a smaller company than it was in the early 1980s when it manufactured business computer systems, it is in a better position to survive now, Murphy said. As a maker of test equipment and bare-bones computer systems for original-equipment manufacturers, he said, Computer Automation competes in a market without a single dominant competitor, such as IBM.

As earnings have improved, so has Computer Automation’s stock price. Traded over the counter, Computer Automation closed Friday at a bid price of $3.50 a share, up about 115% from its low bid during 1986 of $1.625 a share.

For all of Computer Automation’s fiscal 1987, which ends in June, Murphy estimates that the company will earn 50 cents a share, or about $1 million, based on the current 2 million shares outstanding. During Computer Automation’s fiscal 1986, the company had a net loss of $1.87 a share, or $3.8 million.

Next year’s performance should be even better, Murphy said. During its fiscal 1988, he estimates that Computer Automation’s earnings will increase 60% to 80 cents a share, or about $1.6 million in net earnings.

A Computer Automation official said Friday that he could not comment on the analyst’s projections.

“The reason we are recommending it is because at the current price, Computer Automation’s total market value is less than $7.5 million, but they are going to do better than $30 million in revenues this year,” Murphy said.

Although only 2 million shares are outstanding, about 80% are actively traded. Several brokerage firms make a market in the stock, and between 5,000 to 10,000 shares are traded on an average day, so liquidity is no problem, Murphy said.

Since its low-water mark this year, Computer Automation stock has already doubled. Murphy believes that the stock will hit $6 a share within the next 12 months, but adds that if Computer Automation can exceed his 1987 estimates, it could sell for as much as $7 to $9 a share. “We think this is an ideal stock for the small investor,” he said.