Back to NITE - can someone give me an example of another
stock (maybe in the past) that was such a solid (and obvious) value and was beaten so badly?
Terr,
I like the comparison to ASND. As I've posted before, Ascend had traded somewhere north of 60, maybe even up to 80, largely due to rapid growth of its business selling access concentrators to internet service providers. Like NITE, the share price of ASND rapidly ran up.
Then, one day and rather suddenly, the stock began to drop (much as did NITE's share price from its peak of 80). What everyone later realized was that all the mom and pop internet service providers (ISPs) in the country had run out of money, and couldn't afford to buy more equipment. ASND's sales of such equipment started to flatten. And with that, the share price tumbled all the way down to 22 (I remember, I was there). I think they could have forestalled the worst of the decline had they managed expectations better and had they had a better fix on their actual financial situation (something NITE seems much better at doing.)
Anyway, what happened with ASND/ISP sales seems similar, to me, to the issue of OLB volume. NITE rocketed on the initial rapid ramp up of such volume. Then, the inevitable reports surfaced that the increase of OLB volume had flatted (just as ISP orders had flattened vis-a-vis ASND). With that flattening (combined with 3Q seasonality), NITE's share price immediately fell.
The question, then, is what turned ASND around and can the same sort of thing happen to NITE. I believe it can (otherwise I wouldn't be in the stock).
ASND's savior was ATM. They had bought Cascade and, while they bungled the initial acquisition issues, the ATM products brought to the table by Cascade became incredibly hot beginning in 1998. I recall being at a meeting with ASND's CEO, Mory Ejabat, in January, 1998. He said that ATM was everything and would make for very profitable future quarters. He was dead on. (It also helped to know that internet bandwidth usage was doubling every 4 months or so).
Now, what does NITE have to counter the perceived flattening of OLB growth? I think it has a number of prospects, far more so than ASND had, and hence an even greater potential return:
1. Options. The ISE starts in 2000. With all the money NITE now makes, it makes $0 from options. Have we any idea how much this new "product line" will generate? As much as equities? More? Who knows! But the point is, it is an entirely new product line, in a field that has a LOT of action right now.
2. Institutions. This is a market share issue. NITE now has just 500 institutions as clients (you know, mutual funds of one sort or another). But there are thousands of mutual funds, pension funds and the like out there. NITE should be able to grow this market share, and with it, revenues. Please look at the NITE web site, knight-sec.com in the investor section, under presentations, to see how this nascent segment has already experienced rapid revenue growth (though it is still very small).
3. International Institutions. This is an untapped market for NITE now. The London office, opened back in May or June, was intended (I believe) to help target European institutional clients. I can't imagine all the room for revenue growth here.
4. International OLBs. We've got nothing here yet. I suppose it is a source of revenue somewhere down the road.
5. Non-OLBs: E.g., MER and the potential for outsourcing. Enough said.
6. Back to basics: OLBs. Even if the rate of growth slows, there should always be a gradual increase in OLB volume over time. The internet is growing, after all, and stock exchange volumes do tend to increase over time.
It's late, and I could go on, but I do think that NITE has a wealth of opportunities before it. I guess that is why one analyst (can't remember his name) said that KP is having too much "fun" now to even think about merging into some other player. Hey, have fun, make money.
Hope this helps!
Gary Korn
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