LNUX - a true GTZ
on friday I took small short position in LNUX at 5.10 and will be adding to it in the next few weeks.
I want to give credit for this play to my friend Craig.
Here is his research report he sent me:
Company profile: VA Linux Systems, Inc. is a provider of integrated Linux-based solutions, offering a single point of contact for all Linux systems, software and service needs, including the operation of Linux-focused web sites.
CEO recently sold at least 400,000 shares in the 3s.
Company has warned twice for this current quarter. Analysts originally had expectations of revenue of around $43 million. The company scaled back those figures to $30 million when they reported in Febuary. On April 26, the company warned again, as revenues will now be between $18-20 million.
Profits? Previous projections were for late 2002. Very doubtful.
This quarter: "The company also said it expects a loss before non-cash and other charges of 39 to 41 cents per share." That is pro-forma folks.... actual loss, including a restructuring charge for all those laid off employees, will be much greater.
Cash? $67 million at end of January, 2001. Burn rate was around $30 million/quarter, but recent job cuts (25%) should reduce that number. The 10Q filed in March states they have enough cash to last 12 months. I doubt they can make it that long. I can't see them getting financing, and if they do, the terms will be as bad as it gets.
Competition? After a heavy reliance on the "dotcoms", they are now going after the enterprise market where they will run into Compaq, Dell, and IBM. Hmmm. My thoughts? They have a better chance of selling porn instead of these boxes.
Friday's run: Based on CNBC report discussing IBM's announcement (released on Thursday by the way) regarding its decision to invest heavily into Linux products. CNBC then showed a graph of LNUX and RHAT. That is all piggies needed.....
It is interesting that this IBM news could in fact be a negative for VA Linux as IBM pushes heavier into this space....
My outlook: company is a true GTZ and I think if one is patient enough, it will go to bye bye land. Right now fair value (IMHO) is under cash levels: roughly $1/share. I am not covering a single share until mid to high 3s..... Will continue to add if stock moves higher and trade around a core short position. There aren't too many GTZs floating above 5 and I hope we can all successfully take advantage of this true POS.
zdii.com
And you gotta love this line, which the author states after reviewing the company's current valuation: "That's an expensive price for a company whose growth prospects look shakier than jello in an earthquake."
Ha ha ha. :-)
end.
I agree with Craig completely, except for his price target.
I think 2.5 is very possible, and holding long term should provide a ZERO
Many thanks Craig
Michail |
