OFI is a stock that came across my radar screen via VIC. Before I begin, note that OFI is a microcap stock and my track record with stocks in this area is poor. But these mistakes have been in the sexy sectors -- biotech, medtech, any tech. One difference here is that OFI is decidedly unsexy. OFI manufactures frozen food products (entrees, meal components, soups, sauces, poultry,meat, fish). The current share price is $3.66, market cap of $55 million. FY05 sales were $162.6 million.

Here's what I like about OFI:

Sales were up 21.4% in 2005

Income statement ratios moving in the right direction (05 vs. 04)--GM% at 12.2% vs. 10.7%, SGA% at 4.8% vs. 6.0%, Op margin 7.3% vs. 4.7%.

Panda Restaurants and Jenny Craig are OFI's two largest customers (combined 50% of business). Both have been growing smartly.

OFI's move into a new maufacturing facility seems to have been behind the op. expense improvement at the co. OFI still has excess capacity at that plant to "grow into."

Possibility of re-financing of debt--OFI has a 10/31/06 note that carries an interest rate of 13.5%. Re-financing that debt (maybe to the 7% range) would make a big dent in the int. expense that shows up on the income statement.

OFI is pretty cheap--They earned $0.24 in 2005 (15x trailing) and I think that number can move materially higher based on the discussion above--sales growth at the 2 large clients, op expense improvements, debt refinancing.

OFI insiders hold about 20% of the shares.

Risks:

Client concentration (Panda and Jenny Craig). Also airlines are a big piece of the pie. This is a bit disconcerting due to many airlines deciding to cut back on in-flight meals. However, OFI has managed to keep this part of the business around $30 million in the past 3 years.

Not much volume--20k or 30k per day

The re-financing doesn't happen.

OFI had hired Piper Jaffrey to explore alternatives for the co. The risk here is that Piper's recommendation, if followed, might be suboptimal to the shareholders.