Friday, January 12, 2007

Lazare Kaplan (LKI): A Diamond Has it Rough;
Tumbles on Second Quarter Results

Perennial net/net (trading below net current asset value) and diamond company Lazare Kaplan (LKI) took it on the chin today following the announcement of 2nd quarter results. Net sales for the 3 and 6 month periods ended November 30, 2006 were $94.4 million and $233.3 million, down slightly from last year's $96.3 million, and $235.1 million. Gross margins for both periods also fell. Net loss for the quarter was $1.4 million ($3.2 million for six months), vs. a loss of $1.4 million (income of $500K).

The company cited an increase in the sale of lower margin products (rough diamonds) for the fall in sales, and declining margins. We've yet to see a 2nd quarter balance sheet.

Shares fell nearly 7 percent today (to $9.96) on triple the average volume....that's triple the typical 3000 shares normally traded, hardly meaningful. The company had been on a nice run as of late, recently approaching the $11.00 mark.

We continue to hold LKI in our portfolio, and see it as a rare opportunity to own a net/net with potential and undervalued assets. Our shares are still up 28 percent since we took a position this past March.

Previous LKI Research:

*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.

No comments: