A Hot Play in Homeland Security
By Katie Benner

(FORTUNE Magazine) – Investors prospecting for homeland-security stocks have often run into companies with sky-high price/earnings ratios or ones with no profits at all. But American Science & Engineering (ASEI, $51), which makes X-ray equipment used by the Border Patrol, airline security firms, and the armed forces, stands out from the crowd: It is solidly profitable, with a reasonable P/E of 19, no debt, and nearly $13 a share of cash on hand.

The 39-year-old company's crown jewel is its patented Z Backscatter technology, which detects organic materials, like explosives, hidden within dense containers that traditional X-rays cannot penetrate. The Z Backscatter Van, a mobile screening system built into a delivery truck, is the company's most popular product.

American Science began to find its groove in 2003 when a new executive team, led by CEO Anthony Fabiano, took charge. Fabiano narrowed the product line to focus on security products and began aggressively expanding the company's customer base. Buyers include the Departments of Homeland Security and Defense, the Royal Thai Police, Britain's Revenue and Customs, and Hong Kong Customs. Sales rose by 16% in 2005 and by 85% in 2006, to hit $163.6 million. Net income more than quintupled, to $11.2 million in 2005, and nearly tripled in 2006, to $29.8 million. International orders accounted for about 25% of revenues in the company's most recent quarter, up from 12% in 2004.

That said, the stock can be highly volatile, with shares rising and falling abruptly on geopolitical news. Earnings gains slowed a bit recently, and the stock fell to near its 52-week low. But analysts say that tax issues crimped earnings, and they see strong growth ahead, making this an opportune time for adventurous investors to buy in.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.