You did see the lily pond link that came from the Wind thread posted about a week ago. It has been moved from the site Mosher had in his report. It has about 8 different markets that Wind might dominate, any of which might tornado.
Yes indeed I did. I know the potential, the value chain, etc. But I must say, during the last few days I've gone back to the gorilla basics. Back to the financial fundamentals that underly gorilla gaming. Yes, the core of gorilla gaming is financial and can be seen in financial metrics, most notably ROIC I just did a post on it on the Fool explaining the underlying financial justification. Linked to this post are two article by Paul Johnson which is his underlying work which led to the gorilla game to begin with. I do suggest that all read the two articles by Paul Johnson, some of this is reiteration, but at market times like this we need such reiteration from time to time, particularly when Mr. Johnson and Moore have turned into somewhat heretics, and sucked in by this abberational bear market:
boards.fool.com
In the end what it comes down to is high ROIC and such a lock on a market that competitors are unable to eat into this ROIC and reduce it to zero, as you see in traditional markets.
As such, sutained ROIC is a very good indicator of a gorilla. BRCD has an ROIC in the 80s last I checked, NTAP in the low 60s, JNPR's I estimated at 51% but then I did a calculation with Wind River. I actually gave Wind the benefit of the doubt and did not use their current earnings but instead substituted what their earnings would be if they achieved 20% operating margins as management says they will do. The result was very surprising and not positive: 11.7%. Wind River's ROIC is actually less than its cost of capital, which I would think is between 15-18%.
What this means is that Wind River, at least as it is currently operating, including the assumption that it reaches 20% operating margins, is that it is actually destroying and not creating wealth. Earnings growth is irrelevant. As it is returning less from its capital investments than it costs to obtain the capital in the first place. A very ungorillaistic thing to do.
Perhaps when the tornado hits and Wind can claim maybe 50% of their revenues from royalties this situation will change. But I was stunned at how low, in fact wealth destroying low, their ROIC was. Compare that to IRF, a much lower margined, higher capital requirement business. Over the last year IRF has been able to raise their ROIC to 29% and rising.
So, I have to conclude at this time that Wind is still not there. Not to say it won't get there, but it lacks the one fundamental financial metric all gorillas have, very high, and sustainable ROIC. This is the financial metric that gorilla status systematically enables and why we want to evaluate companies under the gorilla method. Wind is failing in this very important data point. Is it perhaps a Pognoid wannabe without the stuff?
I will keep watching. But from this analysis I don't see how Wind can become a gorilla without a tornado in its own revenues.
Tinker |
