David, I agree with several things you said:
"...revenue decline is still a warning flag..." If revenue declines but costs are cut, yielding a (small) profit, can it continue? More likely if revenue continues to drop Avid will find that the fat has been cut from the budget and that further cuts will be from their muscle, which could lead to more revenue cuts, etc. This is clearly not a sustainable pattern.
"...this is a lot of excitement over $0.08/share..." Yup. But if you compare Avid's chart with their financials you'll see that they have always been a story stock. Their price has never been justified by their earnings and a rational P/E ratio. Why start now?
"...this stock is way ahead of itself..." Yup. I said yesterday that Avid was undervalued at 12, and undervalued at 15. But this afternoon I asked myself if it was still undervalued, and if I would buy more at this price. The answers were "no" and "no". So I sold.
However, I disagree with other things you've said:
"...this quarter will no doubt be much better due to NAB orders..." Nope. This was the first year where Avid did not offer discounts at NAB. Also they did not announce the size of their NAB sales book, again for the first time. There will not be a revenue bump from NAB this year. By the way, if you've also predicted MDEA sales for this quarter to "be much better due to NAB orders" I beg to differ.
"...the cash build up came from... reducing A.R... lowering inventory... cash from Intel... A.P. up... I applaud Avid's efforts to bring their expenses in line with revenues..." Avid's surge today was the result of their (small) profit, which in turn was the result of their expense reductions. The cash build up is not particularly related to expense reductions, and certainly would not have motivated the market's (over)reaction. In any case, I didn't mean to imply that their cash build up was the source of their (past) profits. I meant they are building a war chest, and appear to be preparing for (future) battle.
"...this stock is way ahead of itself..." As I noted above, I actually agree with you. However, there are others who could want to buy -- short sellers covering, institutional cattle, people who heard analysts' recent "buy" recommendations and can't imagine the party's over. (I was amused at the Piper-Jaffrey "buy" upgrade today, with a 12 month target of 20!) But if you and I think the stock is overpriced, and the market doesn't, it's going to rise.
Good luck in your investments. I look forward to your opinions. |
