DSL and you: Part 2
From my cursorary studies prodded by Laz's DSL suggestion today, I have this list of stocks "affiliated" in some way with DSL
CMTN, ORCT, TUTS direct competitors (ISPD may be a competitor here as well but too small for this discussion)
and then EFNT, GSPN, VRTA, AWRE, WSTL
GSPN is more of a silicon play than the others so it has that "premium" I guess. Of those list about I "hear" CMTN and GSPN the most on CNBC and in the press... so they have the "hype" affect going for them (usually worth a good 40% over your competitors)
Since everything in internet land is based on revenue lets take a quick look at sequential revenue growth vs market cap of these - and why there is one "buy" in the group.
First group: CMTN, ORCT, TUTS (listed by size of revenue
(last 4 Q's sequential revenue growth)
CMTN - 39,39,73,-9
Total Rev: 112 Mil
Mkt Cap: 4.5 Bil
ORCT - 70,33,10,3
Total Rev: 89 Mil
Mkt Cap: 1.4 Bil
TUTS - 28,66,28,14
Total Rev: 28 Mil
Mkt Cap: 0.7 Bil
So of these 3, what do we see? ORCT looks severely undervalued to me. TUTS should have the fastest growth rates as it has the smallest revenue base to work off of (easier to grow small revenue bases than larger ones -- see Oracle vs Commerce One or Ariba) But in fact ORCT has the fastest growth rate the last Q, and off quite a large base. Also every Q, its had steady sequential increases where as TUTS is all over the place and CMTN has been flat for a Q.
Now the question is, do you buy now or do you wait to see what ORCT does next Q (i.e. do they drop back down to mid 30 sequential growth?) Good question... my opinion is with the huge disparity of market cap you buy now. This is aided by 2 points. One: they are doing a spin off of their semiconductor business by mid year (press release 2/10), and 2 ORCT is more a supplier of the "entrenched" "old economy" phone companies whereas TUTS and CMTN have embraced all the new smaller communication companies. So ORCT's growth should be ahead of it as these "old economy" phone companies work to catch up with their more nimble competitors, plus the companies they work with have so much to upgrade any 1 of these customers would be worth 5 or 6 smaller companies to TUTS and CMTN.
Now this is not to say ORCT wont go down further or go up further tommorow or next week.. no idea... but it bodes well for its medium to long term outlook (2 to 12 months)
For similar numbers for the other players: GSPN, EFNT, VRTA, WSTL, AWRE
I am not going to list the latter 2 as their sequential rev growth is anemic, but lets look at the first 3
EFNT - 116,58,87,122
Total Rev: 50 Mil
Mkt Cap: 8.9 Bil
GSPN - 24,80,9,2
Total Rev: 56 Mil
Mkt Cap: 7.6 Bil
VRTA - 33,15,8,21
Total Rev: 12 Mil
Mkt Cap: 3.9 Bil
Now to start, GSPN and EFNT are comparable on market cap and revenue, but I placed VRTA in this place to show you the power of CNBC and momentum. You can see for a company so small, and in such a white hot space its sequential growth is anemic and this stage (compare it to EFNT or ORCT) Does that mean it wont someday be the gorilla of the space? Certaintly not.. but it means "at this point" its market cap is a joke compared to others in its space. But once again dont forget the CNBC/daytrader/momentum affect... its powerful.. you can profit from it.. but dont we prefer to find "value" (whatever value is in this market)
So lets look at GSPN vs EFNT
Both very expensive with Price Sales ratio north of 130. Hard to place a "buy" on either. GSPN has some silicon business so its the sexier name, and also a CNBC favorite.
I prefer EFNT myself and have been a holder for quite a while. EFNT also has preannounced revenue growth to its analysts of 90% sequentially. Unfortunately I only caught this through briefing.com and its not on yahoo news. So with EFNT you have a "sure thing" and continued AWESOME revenue growth, even at these levels, whereas I look at GSPN and as it has grown the past Q, its revenue has slowed down siginificantly. It will be interesting to see if they can get back to the 40 to 50% range this Q, or if they start to slow down and stay in the 20/30s. If so then I think on a "valuation" basis it should not be in the same league as EFNT as it currently is... but once again, never dismiss the "2 for 1 split" "hot DSL space" "CEO appereances" CNBC headlines that drive up their favorites. But when the smoke and fire clears you want to be in the best names... so far it looks like EFNT out of this latter group.
Mark |
