This column is for investors willing to take more risk and potentially receive more reward.  The stocks mentioned in this column are not recommended to buy or sell.  They're brought to your attention so you can investigate them further to determine if they fit your risk profile.  Most of the stocks will have less than $1 billion of market capitalization, have more volatility than other stocks, and oftentimes no earnings.  And some will have tremendous stories.

June 4, 2010 - Keithley Instruments, Inc. (KEI-NYSE) designs, develops, manufactures, and markets electronic instruments and systems for use in production testing, process monitoring, product development, and research. The company offers approximately 500 products to source, measure, connect, control, or communicate direct current, radio frequency (RF), or optical signals. Products include integrated systems solutions comprising instruments and personal computer plug-in boards that could be used as system components or stand-alone solutions; parametric test systems; and semiconductor characterization system.

The company also offers characterization and curve tracer software for component test applications, parametric test system, arbitrary waveform/function generator, system switch/multimeter and plug-in card family, and SourceMeter instrument line.

Customers include engineers, technicians, and scientists in manufacturing, product development, and research functions. Keithley markets through its sales force and direct marketing and catalog mailings in the United States, as well as directly, and through distributors and manufacturer representatives internationally. The company was founded in 1946 and is based in Solon, Ohio.

First things first: this is a very, very small company. That's why it's only for the brave. All the numbers are small and when stocks are small, they have a tendency to move dramatically in one direction or the other, depending on whether the news is good or bad. That should make it intriguing for very aggressive investors.

The second thing to know is that the stock traded as low as $1.90 in early 2009 but has rallied substantially. It's all time high was in 2000 when it traded at $107.50 a share. From that apex, the trend line has been down for almost 10 years. Can it ever reach the old heights? Can it easily slip back to under $2?

Earnings have been a problem for KEI for the last 3 years. after reporting 50 cents a share in 2006, eps (earnings per share) went negative: minus 2 cents a share. Then they were break even in 2008. Last year, they dropped to negative 74 cents per share. But this year, ahhh, this year. The one analyst following the stock see 89 cents a share and next year a little lower at 80 cents. The company has a history of volatile earnings over the last 10 years, going from a high of $1.26 in 2000 (hence the excitement pushing the stock to over $100 a share) to a low last year of minus 74 cents. Now the company seems to be on track for at least staying positive.

In the second quarter (ended March 31; fiscal year ends September 30), revenues were up 24% from the second quarter last year. Orders increased by 42% to $31 million with Asia showing strong improvement. Sales in 2009 were: 28% in the Americas, 33% in Europe, 39% in Asia. Earnings for the quarter were well ahead of analysts' expectation as well coming in at 27 cents a share vs an estimate of 8 cents. The quarter before, eps were 19 cents a share, again much higher than the 4 cents predicted.

Demand for KEI's products was strong as the nascent economic rebound allowed for more spending by institutional customers. Margins also improved as a more profitable product mix sold in more favorable geographic markets. Also helping was lower manufacturing costs. Look for better margins going forward as management continues to focus on lower costs through cuts in selling, general and admin expenses and fewer product development costs.

Management decided to sell its RF product line, to get the business more focused on the core: test and measurement instruments. This move creates a more efficient operation as the RF division sold Power Meters and Vector Signal and Sprectrum Analyzers which had little overlap with other aspects of the business.

More numbers: Revenues in 2009 were $102.53 million, expected to be $119.20 million this year, then $128 million next year. Price to sales ratio is 1.39. Price to book is 3.14. Book value is $2.97. Operating margin for the last 12 months was 3.65% while Profit margin was 2.20%. Return on equity was 5.32% and Return on assets was 2.97%. Total cash is $39.28 million which is $2.49 a share. Total debt is $114,000. Current ratio is 3.88.

These next numbers are interesting: total share outstanding are 15.77 million. Officers and directors own 63.9% of the stock while Joseph Keithley, Chairman and CEO, owns 99.1% of the class B stock. When insider ownership is this high, there's no question they want what every stockholder wants: a higher priced stock.

Take a look at Keithley if you have the fortitude to hold on through volatile earnings and stock swings. With its more focused business plan, wider margins, and management that is determined to see a better stock price, it may beckon to more aggressive investors.

- Company Web site: www.keithley.com 

- Ted Allrich