Long Shot: A Forward Look

 | Apr 12, 2012 | 1:00 PM EDT  | Comments
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Real Money's Long Shot column is dedicated to trading ideas that are highly risky, but which present an opportunity for significant payoff if they work. Such ideas are sometimes characterized as "lottery tickets" and are for only the most risk-tolerant investors, as the potential for 100% loss is high.

A tiny little company is once again on the cusp of taking a big leap forward and in the process creating a huge advance in its stock price. Forward Industries (FORD) is a provider of protective products for the mobile industry. Forward Industries has been in business since 1961, but when cell-phone use took off a decade ago, Forward Industries shares followed suit.

Fast forward to today, and the shares may once again be ready to head higher, thanks to the Apple (AAPL) iPad. The company's principal business is making protective casing products for mobile technology products. Recently, the company signed a global partnership agreement that gives Forward the licensing rights to sell its own branded waterproof cases for the iPad. In February, Forward signed an agreement with Annex that gives Forward the right to distribute all Annex products, beginning with two of the top iPhone 4 case accessories. If you visit the company's website, you see page sites devoted exclusively to iPhone and iPad products.

Anyone who owns an iPad or iPhone is aware of the plethora of available protective cases. Forward operates in a highly competitive market that is very lucrative for obvious reasons. Apple is selling tens of millions of iPhones and iPads a year. Getting just a small portion of the protective case business is enough to build an entire viable business. I own both an iPhone and iPad, and I have cases for both. And they are not cheap.

That's why Forward, which has a $17 million market cap, needs only a little of this business to have a magnificent effect on the business. A year ago, shares traded for nearly $5; today, shares fetch $2. The company has a pristine balance sheet with $11 million in cash and current assets, or $1.37 a share, and no debt. Equity now stands at $17 million, all of which consists of cash and receivables.

So the long-shot option is that you have a company trying to revive itself by betting its products on the iPad -- not a bad product to bet on. The company is cash rich, although the cash balance stood at $16 million a year ago. Further, the company has lost money for the past three years. And products such as an iPhone case that can also serve as a bottle opener just doesn't seem that appealing.

Going forward (no pun intended), Forward Industries will have to focus on selling products that consumers will want, and that won't be an easy task, given the numerous protective options for mobile devices today. The recently announced partnership agreements are a step in the right direction. 

At the current share price, the market is ascribing little value to a business that, despite a history of consistent losses, could be ready to turn. If so, the share price could easily revisit last year's high, or 100% above today's level. The cash-rich balance sheet is a huge plus and gives the company, and shareholders, a cushion.

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