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.

July 28, 2008 - Liquidity Services (LQDT-NASDAQ) together with its subsidiaries, operates an online auction marketplace for wholesale, surplus, and salvage assets. It enables buyers and sellers to transact in an automated online auction environment offering approximately 500 product categories. The company organizes its products into various categories across industry verticals, such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment, technology hardware, and specialty equipment. Its marketplaces provide professional buyers access to supply of wholesale, surplus, and salvage assets presented with digital images, and other relevant product information.

It also operates a wholesale industry portal, goWholesale.com that connects advertisers with buyers seeking products for resale and related business services. In addition, Liquidity Services, Inc. provides centralized marketplaces with a suite of integrated sales, marketing, merchandising, fulfillment, payment collection, dispute mediation, and logistics services.

It provides sellers a method of remarketing wholesale, surplus, and salvage assets, including preparation of sales information, optional warehousing of goods, settlement, and transaction reporting. The company was founded in 1999 and is headquartered in Washington, District of Columbia.

Here's a niche company, growing sales and earnings at a decent clip. Since it's only been public since 2006, there isn't a lot of history, though it's been around for 9 years. Total sales last year were $198.62 million. This year, analysts see $252.3 million and $291.65 million next year. Earnings were 39 cents last year with expectations of 42 cents this year and 51 cents next year. Quarterly earnings are due August 4 with analysts thinking 14 cents a share, up from 11 cents in the same quarter last year. Next quarter, they see 11 cents a share, the same as in the third quarter of last year. Annual average earnings are projected to grow by 25.75%.

The concern an investor has to have with LQDT is competition. While eBay isn't in the wholesale business or any of the other areas the company works, eBay could easily bid for U.S. Defense Department surplus goods contracts. Or it could set up a site for selling wholesale goods. It certainly has the infrastructure in place to handle any kind of auction goods. Furthermore, there's a Chinese firm, Alibaba, (www.alibaba.com) that sells a lot of industrial goods. It might eventually be a competitor with LQDT. Both eBay and Alibaba have a much larger capital base than Liquidity Services.

Having suggested the concern, there's plenty of good news for the company. It recently renewed its contract to auction surplus from the Department of Defense. It's an 180 day contract which is a renewal and will terminate in December. In the new contract, LQDT is allowed a 39.5% share of the profits, an increase from the original agreement.

Other numbers: Current assets are 3 times current liabilites with $90 in the former and $30 million in the latter. Cash is $62 million of the mix. There is no long term debt. There are 27.9 million shares outstanding. Return on equtiy was 36% in 2005, 12.1% in 2006, and 13.4% in 2007. Last year, the stock hit a high of $24.23. Operating margin in 2007 was 44% with net profit margin of 5.5%.

If a company with a niche in a proven industry (see eBay) has some appeal, look further into LQDT. It is gaining traction in the U.S. and has a beginning in Europe. So far, profits have been there for investors and analysts see a bright future. Now if it can only keep others out of its sandbox.

Company Web site: www.liquidityservices.com

- Ted Allrich