ASDK and options: Munger went so far as to label companies that use off income statement equity compensation as Ponzi schemes. He noted that they are operating non-profit businesses. On the other hand he admitted that in the current environment to keep employees, it is expected that generous options will be given. He said that if he were operating a SW company, he would be tempted to do the same.
I framed such questions recently to the CEO and CFO of HNCS - a direct competitor to FIC. They blew me off, saying that "everybody does it" and "it doesn't cost the company a thing". When I pointed out that from the shareholder's perspective you had to back it out as a cost, and the company was operating as a non-profit. They agreed, and ended the Annual Meeting.
From Munger's point of view - he wants to buy and hold forever. Non-profit revenue growth isn't interesting. From a trading standpoint, it doesn't matter unless the music stops.
In the ASDK situation, it appears to me that significant dilution from these options doesn't kick in until the high 20's, or 30's. Therefore as a trading vehicle from current level to that upper bound, the options may be irrelevant. The cash hoard they have is the result of a secondary floated in the $40's to get favorable tax treatment for their merger. Back it out, and the stock looks cheap on an historic basis.
The reference universe I follow it in: DASTY (Solid Works), MNS, Bentley, SDRC, PMTC, EAII, and MDII is hurting across the board. Two months ago when it cratered on earnings worries and Joe Costello's hype of a new Singapore company that would relegate ASDK to the compost pile, I tried to nibble, but it ran away. Guess it's time to look again.
Lau |
