Buying ELMG - EMS Technologies, Inc.

What does EMS Technologies Do?

EMS Technologies (ELMG) designs, manufactures and markets products to satellite and wireless communications markets for both commercial and defense applications. EMS Technologies designs, manufactures, and markets wireless communications solutions for commercial and personal users in the enterprise mobility, communications-on-the-move and in-flight connectivity markets.

EMS Technologies wants to capitalize on the growing demand for wireless broadband communications. Its products enable communication across a variety of distances and scenarios - from single facilities to global networks. It's three business units are Defense & Space, LXE, and Satellite Communications. Its products address a demand for satellite-based voice and data communications, surveillance, defense and space applications, electronic countermeasures, and precision strike weapons.

The Bulls: EMS Is Cheap

ELMG has several things going for it right now in the bullpen, not the least of which is its current fundamental and technical valuation. Here are some key points to consider:

• Undervalued price ratios (from P/E to P/S to P/C)
• Low debt to equity ratios
• High gross margin and decent net profit margin
• Low PEG compared to industry
• Favorable chart (shows crossing the $20 mark several times over the past decade, and we are currently under $14)

A recent shakeup in management (replacement of the CEO) coupled with missed earnings guidance has caused a bit of a stir on Wall Street, along with uncertainty about the future of the wireless market. We feel that ELMG has taken an undue pounding and is likely to reach $22 again at some point over the next 5 years. They have recent contracts from the Air Force as well as several private corporations. And with the upcoming potential allowance of cell phones on air planes EMS Technologies will no doubt be in line to get a slice of this wireless pie.

The Bears: 

Let's face it, ELMG is losing money. Their profit is down 15% on the quarter and a whopping 60% on the last three quarters. Granted, economic conditions are sour, but so is EMS Technologies' dwindling cash position. To put more icing on the red cake, Zacks' Research recently added ELMG to their #5 (Strong Sell) list. While this may not necessarily be a short, we don't feel ELMG is a buy at this time. Wait and see.