john -
very astute observation about the downside to earning money in a market that rewards hype over reality. i have always felt that USWB is much more appropriately compared to systems integration companies, like CATP, than to true internet stocks like Yahoo or Amazon. By true internet, I mean a company that benefits directly by each eyeball on the internet, not a company that sells billable hours to the companies that actually benefit directly.
the other factors that weigh on the stock are:
1) Shaw has been very honest about the challenges of integrating all of the acquisitions. When a CEO refers to "the ugly period", it is usually best to take his word for it. This honesty will benefit Shaw and US Web in the long run, but it does nothing to goose the stock. Contrast this to Firmage's approach, which was basically to have internet conference calls every few days boasting about the latest synergy, strategic advantage, knowledge system, bla, bla, bla. I admire Shaw's approach, and find him to be a very credible leader.
2) There are a helluva lot of shares outstanding. Many/most of the internet stocks that are in the stratosphere have very limited floats, so it doesn't take much to goose the stock and create a short squeeze. Those days are over for USWB.
3) It is simply overvalued. A few days ago, I calculated US Webs value per employee at around $1,200,000 and compared that to CATP's current value of $200,000 per employee. Since revenue per employee was around $158,000 , it doesn't take a genius to see that the valuation is built on very high (excessive is my bet) expectations about growth.
4) One year ago, CATP was at $60 share touting it's breathtaking revenue and earnings growth, and successfully convincing people that it was sustainable. Well, the reality struck that once you become a big company you can't sustain 50% per year headcount growth while simultaneously maintaing control of service delivery, expense, and profits. USWB is still where CATP was a year ago, all that promise and excitement about the growth. Today, CATP is at $15 after bouncing off of $11. I look for a similar cycle for USWB - looks like it's already happening.
Short USWB, Long CATP (Do the math, it makes sense).
Rick. |
