Quiet day here on SI.
I posted this on Raging Bull last night in response to several panic-filled messages from new investors:
The bottom is not going to fall out of this stock.
The big fear that most new investors in bulletin board stocks have is that suddenly the price will collapse without warning and they will suffer an enormous percentage loss of their capital. This makes them very nervous and suspicious of everything. Their suspicions sometimes sound like "bashing" but they are just looking for reassurance from the more seasoned investors.
e.Digital is pretty unusual for a bulletin board stock in that it has both a very promising future (based upon the realization of its great potential) and the high likelihood of a very solid earnings stream in the near-term.
The Lanier contract should generate at least $10 million (probably quite a bit more) in sales over the next twelve months. Due to their engineering fees, licensing fees and manufacturing management fees, e.Digital may realize up to 40% earnings on that revenue stream. Since e.Digital has large net operating loss carry-forwards, they will pay no taxes on those earnings for quite a long time. Therefore the EPS from just the Lanier contract could easily exceed $0.04 per share.
Positive earnings will also strengthen the balance sheet and attract additional venture capital and institutional equity investors.
Given the huge potential of its other business opportunities (Lucent, Texas Instruments, Intel, IBM, etc.) it is very safe to say that the market would expect no less than a 50% growth rate for e.Digital for the foreseeable future. This would, in turn, support a P/E of at least 50. (Most growth stocks are judged by their "PEG" ratio. This is the ratio of P/E to expected Growth and a ratio of 1 is most common, hence a P/E of 50 is expected for a stock with an earnings growth rate of 50% per year.)
OK, so with Lanier-derived earnings of $0.04/share and a P/E of 50, the stock has a "floor" of $2.00 and the realization of the other opportunities will define the "ceiling". How high is that ceiling?
Very.
This is why the stock has strength here in the $1.80 to $2.20 price range.
So, new investors, I hope this will ease your concerns about a collapse in the stock price. Focus on the long-term prospects and keep studying the implications of the wonderful technical discussions found on this thread. New press releases can only lift the stock price from the current levels.
Downside risk is present in every equity, but EDIG is fortunate to have the cushion of real earnings and almost-inevitable growth.
Good luck to all.
Jim |
