INTS stock price is tanking on the disappointing pre-release announcement, indicating that it will, once again miss analysts estimates (10 to 11 cents vs. 19 cents consensus estimates). Once again, in sympathy, WIND was down earlier and again today, waiting for the market to figure out that this is not a sign of sector weakness, but of INTS internal failures and relentless difficulties of competing against the market leader, WIND.
While our understanding of the effects of market share battles improves with each quarterly announcement by WIND, INTS and MWAR, the stock market always seems to react at first in a thoughtless, knee-jerk fashion. Nevertheless, just watching a stock take the beating INTS is getting now is enough to make even confident WIND investors think about taking profits and running for the sidelines. The market plays hardball with high-tech stocks, and who can be expected to see signs of earnings problems before they surface - at which point the stock will have tanked before you can profitably exit?
Well, it is rarely that much of a mystery. If you look objectively, in virtually every case in which a stock tanks probably there is ample indication. The following is the trail of observations made about INTS starting after they announced their 2nd quarter results for FY 1997.
SEPT 18, 1996 POST #261 ENDED WITH:
"Now you can see why I am not invested in INTS. While the company probably will prosper, all their acquisitions confuse the issue. Costs are higher than expected, perhaps suggestive of duplicative or wasted efforts or lack of accountability - expected after any acquisition, but INTS had a continuous stream of them. Meanwhile, revenues from on-going operations are not growing at rates expected of a market leader, as are revenues of WIND (48.5%) and MWAR (42% qtr ending June).
Why take the chance, I would underweight INTS and buy mostly WIND and some MWAR. Later, when things settle down and INTS becomes better understood, there may be reasons to buy back the stock."
DEC 19, 1996 POST #418 AFTER INTS REPORTED INTS 3rd QUARTER EARNINGS:
"The cost side is unambiguous. INTS is struggling trying to meld all their newly purchased acquisitions into an integrated set of tools, while needing to continue marketing existing products. The costs are killing them. Even after a virtually free $6 million extra in product revenues, the extra costs reduced operating EPS by one cent compared to last year. Expect restructurings and write-offs to contain the bleeding. This suggests, INTS will have to struggle to beat 50 cents a share next year (from operations), which is much less than the already lowered 80 cents currently estimated. Since this is going backwards, the multiple the market will put on the stock can only be guessed at, but it could be as low as 20 or 25, or even lower, taking INTS stock price significantly lower."
DEC 23, 1996 POST #426:
"Is the INTS cup half empty or half full? My initial assessment of their quarterly report saw it as half empty, but so far the market has seen it as half full."
JAN 20, 1997 POST #458, IN RESPONSE TO A QUESTION ABOUT SHORTING INTS:
"INTS is convincing the market that they deserve better than the beating it got over the last few months. The market certainly sees things I don't, so I would hesitate to short the stock now. (But then again, I tend to hesitate to short any stock.) However, before going long in the stock, I would advise making sure all the acquisitions are properly digested, and that the company is back on the growth track. I would not make any assumptions regarding how well this process is proceeding, nor would I be guided by the market price action."
Allen |
