THE MOTLEY FOOL - IOMEGA
(FOOL GLOBAL WIRE) by Tom Gardner
Iomega's $5 3/4 move is for us as life-altering on the downside as it is t'other way. Scored on a scale of 1 to 10 (1 being meaningless, 10 being revolution), I'd say these sorts of moves sit somewhere south of 1.
The Sage wonders: "How so? Praytell, Fool. Investors lost 14% off their investment; the entire company lost 14% of its value in a single day. 24% of our profits are gone since market open on Friday. Less than meaningless?"
Well, that depends on your perspective. If you believe that the price of your portfolio TODAY is extremely important, then you get worried. And you ratchet up the $5 3/4 downdraft to somewhere nearer to ten, on the higher end of the ladder.
Here in Fooldom, however, where what matters is the value of your savings ten or fifteen years down the line, this sort of move is considerably less important to us. Certainly less important relative to, say, the fact that San Francisco---where I am for a few days---is bright and breezy. . . that the trolleys are still running, that Gap hats and sweatshirts seem to sit on every third head and shoulder, that our portfolio continues to kick the market---and by extension, all mutual funds---in the trunks, and that folks focused on Beating the Dow (and beating it) year in and year out for five, ten and twenty years forward really have very little to worry about.
I don't want to prattle on about Iomega again today because you, inveterate Foolish reader, know where we stand on these matters. But let me restate it briefly for newcomers, including the yo-yos who persist at inking in "I say" one-way publications that Iomega is a "small-cap" that is being "hyped" via online chatter.
Investing Foolishly is all about holding ourselves (our bottom-line performance) numerically accountable. If the rest of the financial industry did the same, I suspect you'd see an awful lot of hedge funds unencumbered, a fair number of financial journalists unpenciled, a few television personalities derouged, and an online forum or few analogged.
Were that to happen, we'd have the beginnings of a full-blown meritocracy on our hands---which is exactly why we stapled pointy slippers and kooky hats on our heads three years ago. And probably why you did as well. If we can, together, create a meritocracy and a consumer business out of an industry with no real measuring sticks and little grasp of what it means to serve, we will have improved the life of our nation. Continual improvement, encouragement of it, and collaborative education.
Foolishness today has investors fundamentally researching companies in search of stocks that might reasonably be expected to outperform the Foolish Four Dow group, which over the last 25 years has, each year, nearly doubled-up on the S&P 500, which the vast majority of mutual funds lose to consistently. That's a mouthful, which probably could've been expressed more efficiently, but which I think is valuable enough to justify re-reading it, once.
Sadly, too many aren't even bothering to read it. And articles that toss around the word "Fool" without registering these are the product of dishonesty or of ignorance. Distinguishing between those two---idiocy or deceit---can be tough, but we have our crack staff trying to build up a valuation model to do just that. I don't mean to be harsh. . . just requesting that education be raised above that correlation between controversy and publishing sales. Most in the industry thankfully ignore the correlation. . .
None of that ramble goes to a ballpark fair-value on Iomega, but in past weeks, we've worked through these numbers. Briefly, $1.6 billion in sales for 1996, 4x sales, a $6.4 billion capitalization, margins increasing as disk sales rise, brand-name strengthening heading into Christmas, 135 million shares outstanding, and a stock priced somewhere in the $47-$50 range. Now, these numbers do not include OEM deals, new partnerships, and they're based off projections which we think are reasonable, not aggressive. Time will tell.
Tom Gardner
Transmitted: 5/28/96 8:59 PM (foolport) |
