Market inefficiencies . . .
I'm always amused by posters who believe in perfectly efficient markets. I don't. And here is a great example:
Company #1: Has 15 employees, about $5 per share cash on hand, a CEO who had one prior corporate success. However, it this February just changed businesses (hence the cash on hand from the business sale) and announced it is going into the Internet ecommerce security business. It will have a product out in September, but presently has no revenues, no alliances, no in-house expertise and, of course, no product. Is applying for patents. In a press release, an incoming executive proclaims that its product will be "the greatest thing since the browser." Verisign and industry analysts profess never to have heard of this company, but a previously unknown brokerage analyst puts out a $230 price target (i.e., a $3.5B market cap) based on equating it with the peak market value of VRSN, the leading digital certificate company in the market. The stock zooms to $90, and has now settled in the $40s . . . for a fully diluted market cap of about $1B.
Company #2: Employs over 500 people, with much in-house expertise. Has revenues of about $80M per year, and has recently turned a small profit. Has no cash on hand but no debt. Has announced it is going after the Internet ecommerce security market. OEMing security product via Compaq with sales at the rate of about 200K units per year and increasing. Has announced alliances with Oracle, Schlumberger, Mastercard, and Motorola. Has pilots underway with Mastercard, FAA, Bank of America, US government General Services Administration. Mastercard pilot potential is over $1B, and several others are also extremely large. Reported to have alliances with Siemens and Novell, and rumored to have one or two more Compaq-like OEMs in the wings, as well as next generation technology already previewed to investors and the trade. Has numerous patents issued. Has no effective competition in its market niche. Fully diluted market cap of about $315M.
Questions: How can anyone believe in an "efficient market" theory when CUST has a market cap triple the size of the Identix market cap? And when will the market correct this imbalance? |
