The Wall Street Journal Interactive Edition -- May 8, 1998
Foreign Investors Help Send
LHS Shares to Lofty Levels
By LISA BRANSTEN
THE WALL STREET JOURNAL INTERACTIVE EDITION
SAN FRANCISCO -- LHS Group may not be an Internet company, but its
stock has sure been acting like it.
Friday, LHS shares rose 6 5/8, or 5.7%, to close at 122 1/8 on the Nasdaq
Stock Market -- although there's been no recent news from the company save
that it will split its stock near the end of this month. Meanwhile, the Nasdaq
Composite Index gained 29.23 to 1864.37, and Morgan Stanley's high-tech 35
index rose 15.61 to 590.39.
Shares of the Atlanta-based maker of billing software for the
telecommunications industry are up more than 650% since the company went
public at $16 a share almost exactly a year ago.
And investors appear willing to continue valuing the company's stock at about
140 times estimated 1998 earnings. As a rule of thumb, growth stocks
generally trade at a price-to-earnings ratio of about one time the expected
growth rate, but LHS's 140 P/E is much bigger than the 32% earnings growth
analysts expect.
But unlike Amazon.com or Yahoo!, it isn't Internet hype but rather foreign
demand that is behind the meteoric rise, analysts say. In addition to the
Nasdaq, LHS shares trade on Frankfurt's Neuer Markt
(http://www.neuer-markt.de), and several analysts believe that wild optimism
about the company in Germany may be contributing to the stock's enormous
appreciation.
LHS has major offices in Frankfurt; Kuala Lumpur, Malaysia, and Zurich.
Brian Skiba, an analyst at Lehman Brothers, said that order flows on the stock
have come primarily from Europe. He attributed much of that demand to
enthusiastic buying of the very limited number of high-tech stocks available in
Germany and to the developing culture of equity ownership in Germany.
Equity ownership in Germany is a fairly new phenomenon has begun to
develop in the wake of the privatization and listing of the German
telecommunications monopoly Deutsche Telekom.
The Germans "are in a euphoric honeymoon state in terms of equity owning,"
Mr. Skiba said and added that the Neuer Markt in particular "has really
caught the creativity of the German retail buyers."
Despite the stock's lofty levels, he believes the company's business is strong
and the stock should outperform the S&P 500 as long as there are no disasters
on the German market. Therefore, he has maintained his "buy" rating on the
stock.
Analysts' consensus rating on the stock is just above a "hold," according to a
survey by First Call.
Analysts Eric Upin of BancAmerica Robertson Stephens & Co. and Susan
Passoni of Cowen & Co. both continue to rate the stock a "buy," although Mr.
Upin expressed some concerns about the high price.
"We believe [LHS] is well positioned in what looks to be a huge addressable
market in the telecom billing/customer care space," Mr. Upin wrote in a
recent report on the company. But he added that even though he expects 50%
to 70% revenue growth from the company, "investments at these levels
require a long-term perspective."
Cowen's Ms. Passoni said she wouldn't comment on the stock's valuation.
Friday's Market Activity
Elsewhere in the technology sector Friday, Microsoft gained 2 3/8 to 85 3/4
on the Nasdaq Stock Market, after falling 3 Thursday. Justice department
officials are expected within days to file a wide-ranging antitrust action
charging software giant Microsoft with predatory conduct. Many details
remain to be worked out, such as whether to seek an injunction that might
block the launch of Windows 98. While a settlement is still possible, the
prospects for one seem to be fading (see article).
Baan recovered 1 1/16 to 42 7/8 as investors await clarification about how the
Dutch enterprise-software company will report its earnings in the future. The
stock is down about 20% from its close April 21, the day before accounting
changes resulted in a decline in reported net profit that rattled investors.
Faro Technologies rose 1 to 11 3/4 on Nasdaq. The maker of software-based
measuring and modeling systems that plug into computer-aided-design
programs said it has agreed to purchase Germany's privately held CATS
Computer Aided Technologies of Germany for $20 million in cash and stock.
Faro expects to post an unspecified charge against second-quarter results to
account for the deal.
7th Level rose 1/16 to 6 3/8 on Nasdaq. The multimedia-software developer
closed a $10 million private placement, whose proceeds will finance the
rollout of Internet media preparation software tools. After the close of
trading Friday, 7th Level posted a loss of $2.5 million, or 18 cents a diluted
share, compared with a loss of 6.5 million, or 48 cents a share, in the
year-ago period. Revenue dropped 89% to $462,000 from $4.2 million. The
company said the results reflect the lower cost structure put in place to
facilitate its new strategy, which involved its exit from the CD-ROM game
business.
Telxon added 5/8 to 33 7/8 on Nasdaq. The maker of wireless hand-held
computer devices and other products has rejected an $830 million takeover
offer made last month by bigger rival Symbol Technologies. Symbol added
1/4 to 37 on the Big Board (see article).
Ascend Communications rose 3 1/16 to 45 1/4 on Nasdaq. Donaldson Lufkin
& Jenrette raised its rating on the stock of the networking company to "buy"
from "market perform."
Infoseek rose 1 3/16 to 31 5/8 on Nasdaq. AT&T announced Friday that it has
teamed up with Infoseek to offer its customers Internet access and
communications features -- the telecommunications giant's third such deal
with an Internet-search service this week (see article).
PC Quote rose 9/16, or 21%, to 3 1/4 on the American Stock Exchange, amid
rumors that a major Internet firm plans to acquire a stake in the on-line
financial information company. Volume was 1.8 million, more than six times
the stock's average trading volume of about 280,000. Stockrumors.com first
reported the rumors Friday afternoon. The report identified Yahoo as the
potential buyer. |
