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Technology Stocks : Vantive Corporation
VNTV 77.60+2.6%Jan 12 4:00 PM EST
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To: Clam Clam who wrote (1499)1/23/1998 7:34:00 PM
From: Trader Dave  Read Replies (1) of 3033
 
Clam:

And if the stock blows up?

60% chance they make $0.80 means a 40% chance they miss a quarter over the next 4.

They've never missed and I give them credit, but if for instance y2k distraction becomes problematic or if they blow up for any reason, you could see the stock go to a 20x multiple on 1998 (reduced eps). If they miss in any quarter and analysts slash estimates to lets say $0.50 or lower, we could see the stock go to $12 to $17.

So, over the next year 60% they make the numbers:

.6 X $42

40% chance they blow a quarter

.4 X $15

So to me a fair value is $25.20 + $6 or $31.20. However, that doesn't account for wall street's risk aversion. Discount that with the general negative psychology, you get pricing at these levels.

So we've got at least two to three quarters to get through before we see investor confidence building regarding 1999.

What are the chances they DON'T blow up over the next 6 quarters? How many company's in client/server haven't had a few implosions on their way up?

My understanding is that last year (1996) the company had a bad habit of recognizing all of the revenue from big deals up front, creating lots of upside and lumpiness. Now my understanding is that they are trying to spread out the recognition of the bigger contracts over multiple quarters. I get the sense that there is more visibility and pipeline going into future quarters than they've had, but i don't think that q1 is in the bag. If they had more spread contracts and more confidence i think you could start to see the valuation approach your targets.

Now we see why we need more confidence out of management. Let's hope they're doing what they can to create a virtual backlog.

TD
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