RCM Technologies Profit Surges 88%

  • November 9, 2006

RCM Technologies (RCMT), an engineering and consulting company that was featured in the April 2006 edition of InsideArbitrage reported third quarter results that totally blew away the expectations of the single analyst that covers this company. RCM Technologies reported quarterly earnings of  $1.35 million or 11 cents per diluted share when compared to $717,000 or 6 cents per share in the third quarter of last year. Net income increased by 88% while revenue increased 19% to $51.65 million.

The company has already exceeded 2005 earnings of $3.5 million in the first nine months of 2006 but the 2006 earnings include a $1 million income tax credit. Even after excluding this tax credit, it looks like RCMT will easily surpass 2005 earnings and management claims earlier this year that newly awarded contracts will have a positive impact on 2006 results were indeed true.

While total assets have stayed the same at $106 million since last December, total liabilities have dropped to $25.25 million, making RCM Technologies a wide moat company with very little debt. Investors were clearly thrilled by these results and at one point this morning the stock was up more than 20%. However this is a very thinly traded stock and susceptible to wild price swings. In retrospect, my decision to sell RCM Technologies along with Infosys (INFY) in the InsideArbitrage model portfolio due to concerns about the economy and to fund new purchases was premature.

Full Disclosure: I continue to hold RCM Technologies in my personal portfolio.