PSIX management and ownership

I read through much of the recent 10-K today. Not much has been posted on this board about the ownership structure and the management.

OWNERSHIP STRUCTURE
PSIX went public in 2011 through a reverse merger. There are 11.3M shares issued and 10.5M shares outstanding. Gary Winemaster (CEO and Chairman) owns 37% of the company. His brother, Kenneth Winemaster owns 20% of the company. Institutional investors hold about 35% of the company. That only leaves 8% for everyone else.

MANAGEMENT
Gary Winemaster has run this company since 1992 (company was founded in 1985). Gary is 56 years old. Kenneth Winemaster has been an SVP since 2011 and he’s responsible for the company’s relationship and for the operations with Catarpillar and Perkins. He was a Director since 2001. In 2011, PSIX hire Eric Cohen as COO. He’s an engineer and has an MBA from Harvard Business School. In June 2012, he was given a very generous stock option award of 544,000 shares at a strike price of $22.07 with three year vesting. Today Cohen’s options are worth over $25M! PSIX seems to be otherwise very stingy with granting options to executives and directors because no one else has very many shares. Even the CFO was given only 3333 restricted shares in 2013 as part of his compensation as his first year as CFO.

Overall, I like that PSIX is run by a 22 year company veteran who is a very large beneficial owner. PSIX seems to be shareholder friendly.

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Overall, I like that PSIX is run by a 22 year company veteran who is a very large beneficial owner. PSIX seems to be shareholder friendly.

Thanks Chris,

Any idea of fair value? I bought a starter position at $70 and have been afraid of jumping back in since the price rose almost immediately.

Mykie
PS with a closely held stock like this, does it act differently in some way than stocks not so thinly traded? Maybe it will fall substantially if someone sells a big block?

And lastly, is there a site you go to to get fast notification of any insider trading?

Any idea of fair value? I bought a starter position at $70 and have been afraid of jumping back in since the price rose almost immediately.

PS with a closely held stock like this, does it act differently in some way than stocks not so thinly traded? Maybe it will fall substantially if someone sells a big block?

And lastly, is there a site you go to to get fast notification of any insider trading?

Mykie,

Fair value is an opinion. Market value is what the voting machine is assigning the value to be. If you back out the 2013 gain on the warrants, PSIX earned about $1.25 per share in 2013. That gives the company a TTM PE of about 63. That is very expensive. Saul has previously pointed out that PSIX is trading at a very rich valuation. I very much agree. Despite this, PSIX is about 5.2% of my portfolio. I started buying in late December and bought as recently as last week. My average cost basis is about $68.

PSIX is growing very fast and there are some good industry trends— 1) abundant, cheap nat gas in North America, 2) continued exploration of nat gas in the US, 3) Chinese companies looking to enter the US market, 3) pollution problems in China. There are also some new environmental rules coming on line next year. I suggest you read the “Market” section of the latest PSIX 10-K that was filed at the end of Feb 2014. My opinion is that these market and regulatory forces will propel PSIX forward. I will feel more comfortable when the PE drops to 40 after the 2014 earnings are out. I will feel even more comfortable when PE drops below 30 after the 2015 earnings come out. I believe/hope, like Saul, that the PE will come down as the company earnings increase. Another factor why I own the shares at such a high PE is that the market cap is only around $800M. I think it’s possible that in 10 years the market cap could be $8B. Success in the on-road power systems markets could really boost PSIX’s business in a huge way.

Regarding insider selling, there really are only 3 insiders. Gary Winemaster (CEO) owns 37% of the company and his brother (SVP) owns 20%. Eric Cohen (COO) joined more recently and has over 500K in options. Given that the stock was at $5 a couple of years ago, given the high valuation, and given the huge stake that the Winemaster brothers have, I would not be overly concerned if they started selling off some of their stake in the company. In fact, if they have the majority of their wealth in PSIX, it would be smart to diversify with automatic sales of shares every quarter. I would like to see them preannounce the sales and make them automatic.

Chris

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Regarding insider selling, there really are only 3 insiders. Gary Winemaster (CEO) owns 37% of the company and his brother (SVP) owns 20%. Eric Cohen (COO) joined more recently and has over 500K in options. Given that the stock was at $5 a couple of years ago, given the high valuation, and given the huge stake that the Winemaster brothers have, I would not be overly concerned if they started selling off some of their stake in the company. In fact, if they have the majority of their wealth in PSIX, it would be smart to diversify with automatic sales of shares every quarter. I would like to see them preannounce the sales and make them automatic.

Thanks for all the good info, Chris,

So except for broad market pullbacks, you would expect the PE to remain high until earnings caught up with it… Using that logic, (which does sound logical to me), what would it be too high a price? I love the stock, bought a starter position, love the story and can’t see anything wrong with it other than the price.

I have a real problem buying a stock that moves ahead so fast and with a high PE. It just seems risky and I know we all have our own levels of risk resistance but I’m struggling with when does a good company with good prospects become too high? Seems like there should be another way to analyze these high growers, or momentum stocks than using the same parameters as one would use with the run of the mill stocks.

I guess I have to wait for a pullback before I can add more though I’ll probably be kicking myself in the derriere if the market continues on and up and PSIX with it.

So except for broad market pullbacks, you would expect the PE to remain high until earnings caught up with it… Using that logic, (which does sound logical to me), what would it be too high a price? I love the stock, bought a starter position, love the story and can’t see anything wrong with it other than the price.

Yes, I would expect broad market pullbacks to cause PSIX to go down. I think PSIX is much more susceptible to large downward moves if their anticipated growth rate slows (e.g. they miss earnings/sales expectations, they announce softer than expected forecasts, or their markets experience headwinds as opposed to the massive expected tailwinds).

I think you are smart to be cautious. On the RB boards, there are often discussions about what to do with these fast growing companies. Telsa comes to mind. I looked at Telsa when it was at $40 and I never bought. I watch it go to $80 which seemed crazy, Then $100. Then $200. Then $250. All within a year. I’m not buying at a price anywhere near the current level for exactly the reasons that you stated in your last post.

I think PSIX is different from TSLA as the current price because I can “see” the valuation coming into a reasonable range in the next 5-6 quarters (assuming the stock price doesn’t move), and I can “see” them growing for the next 5-6 years (20-24 quarters) as natural gas increasingly becomes an energy of choice. In fact, if you believe that natural gas will continue to move into the global energy infrastructure then PSIX is an excellent play on that trend.

I mentioned that I first bought PSIX (thanks to Saul bringing it to my attention) in late December at $77. I bought only a small position (0.5% of my portfolio) because I wanted to be forced to start watching it and following it. My second purchase was at $59.70 in late January. I continued purchasing shares below $65. Then in late March I bought a couple of more times below $75. I now have a 5.2% position with an average cost basis of about $68. I’m comfortable with the size of my position while I recognize that there is the potential for large gains and also substantial losses (subject to the risks mentioned at the start of this post).

Hope this helps.

Chris

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“…if you believe that natural gas will continue to move into the global energy infrastructure then PSIX is an excellent play on that trend.”

That is but one excerpt from your great posts, Chris. Thank you for
researching and sharing data, and then, the bonus of your
interpretation to the info. Bravo! Very helpful and much appreciated.

I haven’t yet bought PSIX but it’s been on my watchlist for awhile.