By: Tomas Ronolski - AllPennyStocks.com News

Tuesday, February 25, 2014

It’s certainly not uncommon for micro-cap and nano-cap companies to go overlooked and underappreciated. It is a bit surprising, though, to see a junior firm show an increase in revenue and swing to profitability and still trade with a market capitalization of only around $1.0 million. This is what is going on at Tustin, California-based M Line Holding, Inc., a provider of products, assemblies and services to the precision high tech segment of both the aerospace and medical industries. Through its Elite Machine Tool Company division, M Line (OTCQB:MLHC) also refurbishes and sells high-end Japanese Computer Numerically Controlled (CNC) equipment.

Make no mistakes about it; M Line is a turnaround story in the making as the company is overcoming regular losses and a series of lawsuits in recent years (with some still ongoing and payments yet to be made). The opportunity is clearly there, with the $220-billion U.S. aerospace industry growing steadily as demand upticks for commercial aircraft following a recession lull. Sales of CNC machines are tethered to manufacturing expansion and credit availability, which both have been a little shaky in recent years, but are regularly showing signs of improvement domestically and abroad.

Most of the time, turnaround stories start with a shake-up in the executive team. Last summer, M Line brought in aerospace industry veteran Bruce Barren to replace George Colin as chief executive. Colin moved to the position of Chairman of the Board. The company also changed auditors and legal counsel and in January got current with all of its filings to regain its listing on OTC Markets OTCQB tier as a fully-reporting and transparent company.

Across the different businesses under its umbrella, M Line has an impressive client portfolio that includes the likes of Panasonic Avionics Corporation, a division of Panasonic Corp. (OTCQX:PCRFY); Rockwell Collins (NYSE:COL); BE Aerospace (Nasdaq:BEAV); Structural Integrity Engineering Inc.; UTC Aerospace, (formerly Goodrich Aerostructures), a division of the United Technologies Group (NYSE:UTX); and Beckman Coulter, a part of Danaher Corp (NYSE:DHR). A week ago, M Line said that their new, focused marketing efforts are paying off, with the addition of four new customers and resurgence in activity with previous customers.

The changes are showing up in the books at M Line too. In the first six months of fiscal 2014, ended December 31, 2013, sales improved 36 percent to $6.03 million, versus $4.42 million in the same period of fiscal 2013. In that same time, the company operated in the black, with net income of $374,932, or $0.004 per share, compared to a net loss of $742,089, or $0.01 per share, in the same period a year earlier, representing an improvement of $1.12 million.

If extrapolated out for the full fiscal year, earnings could be in the range of 1 cent per share for M Line based upon the increase in earnings from the first to the second quarter. In fact, M Line has forecast earnings of $1.5 million for fiscal 2014, which based on 95.27 million outstanding shares, equates to 1.5 cents per share in profits. In an industry where price-to-earning ratios generally fairly value companies at 15x – 20x earnings, it’s arguable that M Line could be trading at a low end of 15 cents per share and perhaps as high as 30 cents per share at the end of the fiscal year if guidance and the upper end of P/E ratio is met. This may not happen, though, until some drag is relieved with regards to lawsuits and any convertible notes are fully addressed, but, to be fair, this requires more extensive due diligence and a discussion with management to properly ascertain the status of debt and/or potential debt the company faces. On the positive side of the coin, however, M Line certainly seems to be trending in the right direction and doing so quite quickly.

On Tuesday, M Line said that they have completed construction of a new addition at its Elite Machine Tool division to meet rising demand for Elite products. The factory was increased by 50 percent and now is in excess of 21,000 square feet.

"75 Machines were sold by Elite during the first six months of Fiscal 2014, almost double the 38 sold in the comparable FY 2013 period,” commented Bruce Barren in a statement today. “[The facility expansion] is yet another step in our progression to meet the demands of a growing business which will ultimately result in increased revenue and greater shareholder value."

Shares of MLHC have stepped down in early Tuesday trading, shedding 3 percent to 1.3 cents. From a brief overview, this is a company worthy of more due diligence to discern why one plus one is not equaling two.

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