Briefing.com.....
Trader's Edge: Tibco Software (TIBX)
The tape has been kind to short sellers over the past two weeks. The rollover in the Nasdaq has sent the Index stumbling back to the breakeven mark for the year, following a 20% advance through the end of January. Even more rewarding to shorts has been the steady technical deterioration in some of the market's favorite technology names. The list of recent 52-week lows is a Who's Who of technology leadership -- Ariba, Sun Micro, Cisco Systems, Corning, Brocade -- to name a few. The primary driver of weakness in these stocks has been high multiples and fears of slowing earnings growth. While Tibco was certainly guilty of the former, it has given no indication of the latter.
Trading Points
For the quarter ended Nov. 30, the developer of application integration software reported earnings of $0.10 a share, 3 cents above Wall Street views, compared to year-ago EPS of $0.00. Revenues for the period increased 213.5% to $68.05 mln....For the year, TIBX added 343 new customers, bringing the total number of direct TIBCO customers to nearly 700... As of February, the company's customer list had expanded to almost 1000 names. Of these, only a handful fell into the dot-com start-up category.
Since the release of inarguably strong Q4 results, Tibco (TIBX 23 13/16) shares have fallen 44%. Stock has been just one of many names in the software sector to succumb to multiple compression, despite consistently delivering robust growth.
Analysts expect the Palo Alto-based company to turn out $0.32 a share in earnings for 2001, implying yr/yr growth of 45%. The company is expected to grow bottom-line results at a 65% clip in 2002... Forward EPS forecast of $0.53 a share translates to a multiple of 45... Even a market undergoing a valuation shakeout can appreciate a PEG of 0.7.
We also like the relatively high short interest in the stock. There are currently 3.03 million shares outstanding on the short side, representing more than 5% of the company's 56.8 million share float.
Oversold condition of the Nasdaq puts TIBX in favorable position for a short-term bounce.... Recent slide to a new 52-week low leaves stock dangling in the wind with little in the form of meaningful support to rely on. We are forced to go back to 11/14/99 level of $22 5/8 to find the first level of significance. We will draw our land in the sand (read: place our stop loss order) 3/4 of a point below this level at $21 7/8.
Conclusion: While doubtful that TIBX will be spared from the slowdown impacting other areas of the technology sector, recent comments from the company suggest that it has yet to feel the impact. Of course, it is probably just a matter of time before the company or analysts begin to adjust numbers to reflect softening in IT spending... At present, valuation and oversold posture make TIBX an excellent candidate for a short-term bounce. And the company's history of attracting a momentum following makes a short-covering fueled advance that much more promising.
Damon Southward |
