Long Shot: High on Command

 | May 02, 2012 | 3:30 PM EDT
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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.

Few people will the dispute the value of protecting the people and infrastructure of the United States. Command Security Corp. (MOC) is a tiny company that zeroes in on precisely that need and has a built a tidy business out of it.

The New York-based company provides uniformed security officers for aviation and other security services to various industries in the U.S. Whether it's a government agency, a major financial institution, a school, or a hotel, Command can supply the personnel to handle many facets of customer security needs. On the aviation side, Command provides security for airlines, aircraft, baggage-screening and various other industry needs.

The segment accounts for 45% of Command's revenue, with the rest coming from all other security services. Over the past fiscal year, Command has lost a couple of key security contracts that have led to a decline in sales and profit. But the company remains profitable. For the first nine months of fiscal 2012 ending March 31, Command generated revenue of $107 million and earnings per share of $0.09 compared with revenues of $110 million and EPS of $0.13 in the year-ago period. The dip in numbers is not that bad when you consider that Command lost a security contract with Delta Airlines at New York's JFK airport, another airline security contract at Oakland International Airport, in addition other security-service contract losses, as well as reductions in security services hours.

Given the difficult state of the airline industry, it's easy to see why Command's huge chunk of business from that industry would be a concern. On the other hand, security is not a service to be given up in a cost-cutting effort; it's a must. In fact, the reason Command's revenue and earnings didn't fall off a cliff was because it offset the loss of the Delta contract by picking up new contracts from aviation customers.

Command shares closed Tuesday at $1.18, valuing the company at about $13 million. Professional fund managers cannot look at the stock, so it sits there unknown except to followers of micro-caps. Book value sits at nearly $20 million. In January, the company brought in a new CEO, Craig Coy, whose deep skill set should serve Command well. Prior to joining command, Coy was COO of L-3's homeland security group.

At $1.18, Command shares are off nearly $2 from several months ago. The company trades for around 10x average EPS and 65% of book value. The board recently announced a $2 million share buyback, noting that "the underlying businesses of Command is worth considerably more than the trading price of its common shares." When this announcement was made last December, shares were trading around $1.50. They are $1.18 today.

Command's security services are essential expenditures for its customers. Under new leadership, a couple of key contracts could send this micro-cap soaring. In the meantime, Command's existing catalog of work provides it with a decent revenue base going forward.

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