Novell (NOVL) dirt cheap, good buy? Message Board

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Technology Stocks : Novell (NOVL) dirt cheap, good buy?

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To: Scott Phillips who wrote (5694)	12/10/1996 10:38:00 AM
From: E_K_S	of 42771

Hi Scott - There are two separate forces acting on Novell; Technical stock distribution flow and Fundamental value accumulation. These two factors seem to balance out at the current price of $10 - $11 per share. A five year price and volume chart on Novell shows a steady down trend peaking at a low hit in November 1996 at $8.75 on very heavy volume. The previous low was established in September 1996 at around $10 but on 1/3 less down volume. Over the last year, it appears there has been a significant distribution in stock moving from owners that have accumulated the stock at much higher prices to investors buying at lower prices (around $10). In technical terms, this is known as accumulation, base building and distribution which takes some time to work its way through based on supply and demand factors. The value investor is providing a lot of support at the $10-$11 range and IMO much of the most recent accumulation of stock is moving towards this group of investors who typically hold for a longer term (three to five years). This is bullish for Novell at these prices as many of the weak hands have already sold their shares and left the party. Now, what has changed with the company over the last five years and in particular in the last 18 months? The company has repositioned it's resources to the specific networking industry introducing new and value added products to this group. The overall industry continues to grow and Novell plans to participate in this growth. If you analyze the rate of change in revenues, profits (and margins) and operating expenses, Novell has appeard to turn the corner. Revenues and profits have been decreasing over the last 18 months and with last quarter's report they have appeared to stabilize and show a rising trend. Operating expenses about six months ago peaked as a percentage of revenues and have declined significantly (due to Frankenbergs oversight) showing a more lean and mean operation. The wall street analysts still are taking a wait and see attitude even after initial indications that the worst is over. This is why the fundamental measures such as company PE vs industry PE is quite low, Price to Sales ratio very low at 2-3x's, and and other typical valuation measures indicate a significant under valuation. It has been my experience that the large mony managers will invest in a turnaround company (a lagger in the industry) very causiously and conservativly. They would rather be late to the party and are usually the last to invest in the turnaround cycle (and generally pay a much higher preminum). In fact you and I will probably be selling our share at $25 to one of these large institutions in the next 18 months <G>. Technical Statistics look as follows: 50 Day Moving Average: $10 5/8 100 Day Moving Average: $10 7/8 200 Day Moving Average: $12.00 29 Day Average Trading Volume: 3,511,679 shares 29 Day High: $11.88 29 Day Low: $ 8.75 Lower lows established on heavy volume (2 1/3 times)which indicates futher distribution is needed before moving higher. To Summarize, this stock is in a distribution consolidation period as value investors accumulate shares. The longer the consolidation period the longer the eventual move higher. This is the key factor which makes me bullish. Once the turnaround in revenue growth and profits is made and sustained (and recongnized by Wall Street), the rise in share price could last as long as five years or until new high in the stock is reached. Remember, we are investors not speculators and these things take time! Three to Five year money will be rewarded with excellent returns. EKS

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