Steve Harmon talks about Orckit in depth:
Talking about DSL smacks of a scene from Back to The Future, with the future being now. While in 1995 DSL was a pipe dream (literally) in 1999 signs of life stir in this broadband over existing telephone wire area. Investors have signed on to stocks such as Copper Mountain Networks (NASDAQ:CMTN) in a big way recently.
Copper Mountain was the #1 supplier according to a July 12 report by Dataquest showing that in 1998 Copper Mountain ranked first overall in shipments of business DSL central office ports, 29.5% of the world market. CMTN shares also benefitted from a superb second-quarter, revenue was $22.9 million vs. $1.3 million for the second quarter of 1998.
CMTN shares have soared on the news and buy touts and traded between $50 1/2 - $130 1/8 since its May 13 IPO. Market cap was $2.5 billion as of August 17, about 27x annualized revenue. Net income was $2.3 million or $0.09 per pro forma diluted share for the second quarter of 1999, vs. net loss of $3.5 million or a loss of $0.21 per pro forma diluted share for 2Q98.
Excluding the stock based compensation charge, net income was $3.9 million or $0.15 per pro forma diluted share for the second quarter of 1999, vs. net loss of $3.0 million or a loss of $0.18 per pro forma diluted share 2Q98.
I think CMTN still has some legs in the stock but how about one that could be spurting legs of its own. Here's one that I like in the similar DSL vein. Orckit (NASDAQ:ORCK). Why? A few reasons. 1) Orckit was named #2 by Dataquest in its DSL survey. 2) Orckit revenue was $16.075 million for its June quarter vs. $10.9 million 2Q98. Net loss bothers me vs. Copper Mountain, as Orckit posted net loss of $5.6 million 2Q99.
But valuation-wise at 7x annualized revenue I think ORCK looks undervalued vs. Copper Mountain. Let's estimate a more favorable 10x that implies ORCK at $37.23 per share. It closed August 17 at $28 1/8 per share. An even more aggressive 15x multiple implies ORCK at $55.85 per share, which I am making a target price for this one next year.
Ultimately, beyond any one company or stock, the key driver to me is I believe that DSL may be a big story for 2000/2001, leveraging off of the millions of miles of plain old twisted pair copper wires that the phone companies installed globally. Broadband is coming. It's here and there right now. Back to The Future before we know it.
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