Investors Should Be Willing to Wait : For Tiny Odetics, Great Expectations

Odetics Inc. may not be the kind of stock that one should buy with next month’s rent money. But investors willing to wait a decade for a return on an investment in the company might be well rewarded, analysts suggest.

“You don’t buy this stock because of 1988 earnings,” said William Gibson of San Francisco-based Sutro & Co. “You buy it because this could be a billion-dollar company someday.”

With a total market value of only $23.7 million, Odetics is a long way from being a billion-dollar concern. And for now, Odetics has sacrificed earnings growth to invest heavily in robotics.

The 17-year-old company virtually controls the market for tape recorders used in space exploration and holds a sizable chunk of the market for video cameras used in banks.

For the last six years, however, Odetics has been building a niche in robotics.

Recently, Odetics unveiled an updated version of a six-legged robot that looks a lot like a mechanical spider. Dubbed “Robin,” the machine features a pincer arm capable of lifting 50 pounds and is a prototype of a mobile robot for use in nuclear power plants.

Because of the heavy emphasis on developing the robotics business, net earnings for the fiscal year ended March 31 fell 93% to $33,053 from $475,916 a year ago. On a per-share basis, that translates to 1 cent a share, compared with 12 cents the year before.

(In 1984, Odetics issued a Class A common stock, which has one-tenth the voting rights of the existing common shares. Neither stock pays a dividend. Both Gibson and Odetics calculate per-share earnings on the combined 3.9 million shares of both classes currently outstanding.)

During the current year, Gibson estimates, Odetics will either break even or post net earnings of just over $106,000, or 3 cents a share. Earnings for 1988 should improve somewhat, reaching $738,000 to $893,000, or 19 to 23 cents a share, Gibson said.

Part of those increased earnings will come from a new machine Odetics introduced this year, a mechanical arm for automating television broadcasting. This year, Odetics is expected to sell about 10 of the devices, which cost $250,000 each. Next year, Gibson said, Odetics may sell as many as 30 to 50.

Joel Slutzky, Odetics’ founder, chairman and chief executive, said Friday that Gibson’s estimates are “not unreasonable.”

Because of the soft earnings and a weak market for secondary stocks, Odetics’ shares have drifted downward from their 1986 highs of $10.25 a share for the Class A and $11 a share for the Class B. Traded on the American Exchange, the Class A closed Friday at $5.875 a share, while Class B closed at $6.625. Both figures are near their lowest levels for the year.

Although the stock seems to have reached a support level, Gibson isn’t recommending it to his clients, largely because of Odetics’ small size and weak near-term earnings.

Nevertheless, Gibson holds some Odetics stock himself. Because of Odetics’ leading position in the robotics industry, a field where growth seems inevitable, Gibson said both classes of stock could eventually trade for as much as $200 a share.

“That could very well be true,” said Larry Butler of Costa Mesa-based Newport Securities, who believes that the applications for “Robin” the robot are virtually limitless.

“The only problem with Odetics is that, if anything, that company is a little ahead of its time,” Butler added.

“I’ve never been able to figure out the stock market,” Slutzky said, when asked if he thinks his company’s stock is a potential $200 issue. “If you go 10 years out, we could be a much bigger company than we are today, but we’ll have to wait and see.”

Despite the position the company now enjoys, larger firms are expected to jump into the fray as the robotics industry grows. In order to prosper, Gibson said, Odetics will have to maintain a technological edge, in addition to seeking joint ventures with bigger firms.

Still, Gibson suggested, the downside risk is fairly limited. The stock probably won’t fall much below its current price, the company is profitable, and at the very worst, Odetics would be a likely acquisition just for its technology, he said.