I didn’t read the Forbes article. I don’t blame WIND volatility on market makers, although they could contribute some or a lot. Actually, WIND is volatile because the market’s clouded view of the future of high-tech business changes frequently, and WIND’s price depends on future performance. It also is volatile because of profit-taking during a correction. It also is volatile because…
It doesn’t matter - as long as the volatility doesn’t break you while you wait to reap future rewards.
Talk about volatility and the market’s struggles to value a company, look at SYSF. The first of probably many System Wizard licensing deals is on the table (sending the stock way up a while ago), and now the market is yanking the price back and forth, trying to price the company. Any fool can do the arithemetic, aided by floor licensing fees provided by SYSF ($5), and the number of units expected to be licensed by AST (8 million). Extend that deal to a few others and you are talking about real money, on top of a core business that presumably is growing earnings at 50% annually.
Now, the fun part is how do you price it? What is the intrinsic value of a share of SYSF? What if something goes wrong? What if MSFT decides to compete afterall? On the other hand, Intel is a powerful partner (and part owner), and along with DEC there should be enough intellectual property to ward off competition, perhaps almost totally. Hard to come down to an absolutely concrete price, isn’t it? Well don’t feel special, the omniscient market is having trouble pricing it, too.
In the same vein, the market will always struggle somewhat with WIND’s proper current price, as it should. Run-time license fees are obscure. Units are guessed at. CAGR for 32-bit microprocessors is estimated to be somewhere between 50% and 136% over the next number of years. That’s not very tight. If it can’t figure out SYSF’s price, it sure can’t with WIND’s either.
I2O’s contribution alone is difficult to pinpoint, ranging from nice to unbelievable. (I will post more about this later).
Personally, watching the market struggle, particularly recently, trying to price high-tech stocks is intriguing. As investors, of course, our job is to conservatively estimate these numbers, check closely for downside possibilities that must be eliminated for big investments (not necessary for small ones - I’ll explain if you want), then take absolute advantage of a confused market that will make mistakes.
Allen |
