Worry reducer No. 4: (from MSN)A decent time span -- more than 180 days -- since the IPO. A company that can claim any connection with fibre channel is hot, and I think rightly so since the technology promises to speed up the movement of data in and out of computers and servers. QLogic (QLGC), which makes chips and boards that use fibre channel to connect servers and storage devices, has been hot (up 183%) this year. Brocade Communications (BRCD), a company that makes switches for directing the traffic on fibre channel networks, has been even hotter, up 184% in just the last month. Which of these is the riskier buy going forward? (The two companies don't compete in this market so an investor could buy both.)
Investors in QLogic certainly face the risk that the market for fibre channel might not grow as fast as everyone hopes, for example -- not exactly a negligible worry for a stock that trades at a P/E ratio of 107. But investors in Brocade face that market risk as well as a financial risk. Brocade went public May 25, selling a miniscule 3.25 million shares. At least some of the stock's amazing rise is attributable to the small supply of shares on the market. That supply is set to jump significantly when the lockup period expires and early round investors, founders and employees can sell up to 10.9 million shares. According to the company's original prospectus, the lockup was set to expire Nov. 25. Of course, not everyone will sell shares on that date, but the increased supply -- whatever it turns out to be -- is important when we're talking about a stock with a market capitalization of almost $6 billion and just $62 million in estimated sales for 1999. By comparison, QLogic has a market cap of $3.4 billion, estimated 1999 sales of $192 million, and 38 million shares outstanding. |
