My view of the 90 day BMCS summary is as follows. Following the big drop on the company's revenue/profit shortfall warnings, BMCS took a huge hit and continued to slide. Nobody wanted to catch a falling knife. So, it slid to ridiculous valuations, by historic metrics for BMCS and the software industry in general. Forward PE of 12'ish for BMCS was definitely cheap!
Then it stabilized and started to inch back slowly, as the street saw that BMCS management was serious about addressing the revenue shortfalls. Finally it culminated in the upgrade by one of the big boys with a short term target of $30 and a strong suggestion that once revenue growth returned and the mainframe pricing issues worked themselves out estimates would be raised (both rev's and earn's).
Well, then the Nasdaq decided that it really was a bit ahead of itself. Valuations can only be stretched so thin. So general market softness and specific software sector weakness combined to keep BMCS on the lower end of the trading range.
Then the leaks began springing up again. First one was a rumor that BMCS would miss the quarter inspite of all the damage control and effort to rebuild. CEO directly denied that on CNBC in short order after it hit, but the damage had already been done.
The next leak was IBM's $200 million investment in a database business segment, which could directly compete with BMCS. The message here--an already weakened company was vulnerable to IBM taking away more and more of its business. Bottom line: the concern (fear?) is that if this starts materializing in any significant way, this "short term" weakness in BMCS may not be so short term.
I don't think it was any coincidence that Max talked a fair bit during the last annual shareholder mtg about new investments for the company. The "startup" like initiatives, as he coined it. I think this was meant to convey that even if the mainframe part of the business does not experience the growth of the past, BMC is working on developing new revenue streams.
Either way, the picture, or at least the relevant question for BMC seems to be coming into focus. Was it short term turbulence or long term strategic difficulty in BMC's core business? I think this quarter's numbers and cc will add several pieces to the puzzle.
I still believe in BMC's long term value, but there definitely is some risk in this stock. There always is with this good a valuation for such a strong company.
-John |
