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 16, 2009 - Mercury Computer Systems, Inc. (MRCY-NASDAQ) engages in the design, manufacture, and marketing of high-performance computer signal and image processing systems and software for embedded and other specialized computing markets. It has three segments:Advanced Computer Systems (ACS), Visage Imaging (Visage), and Emerging Businesses Unit (EBU).

The Visage segment develops and distributes visualization and picture archival and communications system solutions and other three dimensional software solutions for the life sciences market.

The EBU segment focuses on services and support work with federal intelligence agencies and homeland security programs. Mercury Computer Systems has operations in the United States, Europe, and Asia Pacific. The company was founded in 1981 and is headquartered in Chelmsford, Massachusetts.

Two things immediately stand out about Mercury: it's still very small, and the stock price is very volatile. Revenues were $209.9 million in 2008. This year, they will most likely drop to $193.05 million (fiscal year ends on June 30.....year end results will be announced on August 4). So sales were disappointing this year, and the stock reflected that, going from a high in 2008 of $16.10 to a low of $2.20 in 2008. Now it's trading at $11.40, up about $2 in a week. That's why the caveat on volatility: this stock can move dramatically so be prepared for major pops and drops if you decide to ultimately buy this one.

Mercury cleaned house over the last year, getting rid of non-core businesses and focusing on its strength: advanced computing solutions. In May of last year, it sold its embedded systems and professional services businesses; in September it got rid of its biotech group; in January of this year, it sold the Visage Imaging division; in June, it let go of its visualization sciences group.

That cleared out a lot of losing entities and when operating results were restated to reflect discontinued divisions, earnings showed a gain of 6 cents in the first quarter (vs loss of 6 cents before) and a loss of 5 cents in the second quarter (vs loss of 11 cents).

Going forward, Mercury wants to make new product development in its signal processing and multicomputer product lines the priorities. The new products are already paying off with contracts coming for 18 designs in the first half of the year and another 9 in the third quarter. The final quarter started off well with 2 new contracts, one for $18 million for a ground based radar program and one for $12 million for an airborne radar program. Most recently it won a $2.7 million order for computer components to the Predatory unmanned aircraft system. With expanded hardware products, the company can offer more complete solutions which should win additional business.

More numbers: Price to Sales is 1.25. For the last 12 months, Operating margins were negative 3.54 producing Profit margins of negative 14.58. Return on equity was minus 17.77%. There's total cash of $40.58 million and Total debt of $38.7 million. Current ratio is 1.18. Book Value per share is $6.17. Price to Book is 1.88. There are 22.65 million shares outstanding. Insiders own 9.07%. Institutions have 80.4% of the stock. There is no dividend. For the last 52 weeks, the stock has been as low as $2.21 and as high as $11.75. It's currently trading near that high. But in 2001, the stock peaked at $58.90 so it's well below that level.

As mentioned, this can be a volatile stock in terms of price, sales and profits. It appears management has decided to go with the company's strengths and eliminated all the non-core businesses. With the new contract awards, it would seem the strategy is paying off. If it can keep offering new products, the company looks like it's well on its way to staying in the black. Aggressive investors should like this story and want to read more about Mercury as a possible addition.

Company Web site: www.mc.com

- Ted Allrich