Yes, I hear you about "grossly undervalued" and agree.
However, keep in mind: NOT EVERY GREAT COMPANY HAS A GREAT STOCK.
It is my opinion, that KP is brilliant at building NITE's business, but a HORRIBLE builder of shareholder value through share-price. And we are in the market for the share-price.
I cannot in good concience, be a shareholder in a company, where I am absolutely convinced, without a shadow of doubt, that they insiders at best do not UNDERSTAND how to protect the value of their stock. Most great companies' managements understand that you do have to tend to the value of your shares - actively; MSFT, AOL, CMGI, AMZN etc., etc., etc., are obsessively dedicated to it. It is mindboggling to me that at NITE they take the attitude that "the numbers will speak for themselves" - that is never the case, especially when your business is so misunderstood (lumped with the OLBs etc.).
At worst, I suspect (though this is just an opinion, and I have no proof) that we are dealing with a bunch of rogues who are determined to enrich themselves at the cost of the shareholders, and enrich themselves as fast as possible. They'll rape this stock for everything its got, and then rape some more - ruthlessly, like there is no tomorrow.
If you think that this will pass quickly - I wouldn't count on that. There are many disturbing signs. The Walter Raquet options play, where he's hedged himself several YEARS ahead on his shares - if you look at what that options play is, you will note that he expects extremely limited upside and a lot of possible downside YEARS ahead. Scary.
There is not one buy by anybody from the insiders - selling is as relentless and determined as any I've seen.
You think that this thing about KP "diversifying" is hunky dory? I don't. With his level of compensation (salary plus his trading profits) he is still determined to sell "20%" as fast as he can? So that he can "diversify"? That means he intends to invest immediately in other stocks because clearly he is not 100% confident that NITE will outperform those other stocks. And tell me, dear friend, who is in a better position to know what the business prospects are? Now, if you are as smart as he is, and know the business, AND THE MARKET inside out, couldn't you at least be sure that your stock would... say, double, triple every 1-2 years? That much he must have a feeling for! So now ask yourself - does he think that the new stocks he buys will do BETTER than his idea of NITE's double, triple every 1-2 years? He cannot know those stocks as intimately. Yet he thinks they'll do better than NITE's double, triples every 1-2 years? That means they must at least go up 400-500% every 1-2 years to do better than NITE. That's a tall order, and you don't know those stocks as well as your own NITE-busines. Clearly, he DOES NOT think NITE is going to "double-triple" like that, or he'd stick with it, instead of taking a chance on stocks he knows less well doing 400-500%. Clearly, if he was extremely confident of NITE, he wouldn't diversify. And let me tell you - there are many companies, where management is extremely confident of their growth rates and their stock value - and interestingly they often do NOT sell their stock - they may even buy... unless their salaries are low, and they must make money from stock sells (options). KP's compensation at $9 million is not low. Let me ask you - if you knew for sure a stock will double-triple every year (or as confident as many companies managements apparently are), would you sell some of it, or one fifth of it, if you didn't need the money??? I smell a rat.
The signs are all around that make me uneasy about just how much appreciation potential this stock has, and how fast. The collar was another one - should have been a big wakeup call. I don't care what anyone says - you don't establish absurd levels like $23-35, unless you thought that these numbers were very real - they cannot afford to fool around, this is an issue of money IN THEIR POCKETS if they make a wrong call - and remember, the Arbitrade guys are used to dealing with situations where you have a "collar" - that's the definition options. And as we know, Arb. are very good at it - they almost never lose, as KP boasted. And NITE cannot afford to mess with them either - they have to work together, so they want to keep them happy. So the 23-35 collar was very realistic, and their best collective idea of what could happen to NITE in this time frame. Yep, this was a real number, and it was $23-35, not $45-$65.
Other disturbing things. You think that the stock just CANNOT sink lower and stay low because the p/e is low? Wake up my friend. The p/e on a finance company can be as low as 8-9. Now, if NITE's growth is very good, they may deserve a premium, say, 18-20. You do the math. And if their *rate* of growth slows (my points to blankmind yesterday), that premium could be cut mightly fast. Add to that risks of an evolving business model, and the p/e gets cut again. Not pretty. And that can last for years - or forever. That is why I was screaming hysterically last year about the dangers of getting stuck with a tag of "low p/e finance" business. Now they did it. And just how fast will their *rate* of growth be (argument from yesterday with blankmind)... here's the next disturbing thing:
from the horses mouth, in response to the Bear Stearns coverage:
<<Knight's volume rose 12.5 percent in December, higher than
the industry's 8.3 percent growth, though lower than online firms'
19.5 percent gain, Butte wrote. Also, ECNs will either merge or
improve their record of finding matches for trades, resulting in
fewer orders finding their way to Knight/Trimark for final
execution, she said.
``Market share gains when you're smaller come more easily,
and we're now at a more mature stage' Kenneth Pasternak,
Knight/Trimark's chief executive, said in an interview. ``We still
think we're the category killer and two days ago we did 800,000
trades,' up from the fourth-quarter average of 470,496.
Knight/Trimark captured much of its market share from firms
like Merrill and Goldman Sachs Group Inc., and those firms are
responding, Pasternak said.>>
Does this make you feel all warm and fuzzy? KP's words: <<Market share gains when you're smaller come more easily,
and we're now at a more mature stage'>>
and
<<Knight/Trimark captured much of its market share from firms
like Merrill and Goldman Sachs Group Inc., and those firms are
responding, Pasternak said>>
so, does that mean that in the beginning they ate into ML and GS market share, and now those guys are RESPONDING? Combine that with the "mature growth, is not as fast" statement, and it sounds like growth will be slower and competition greater. The writing is on the wall. That's from the horses mouth. So where do you think that premium in p/e will be now, with slowing growth?
Now look at the whole picture: low p/e, getting lower, maybe likely to get lower yet; *rate* of growth slowing; insiders bailing fast NOW, not waiting to sit on dead money - clearly they don't think shareprice will explode upwards real fast - do you still think that those insider sales are meaningless? Low p/e is here to stay, and if it gets cut down much further, look for lower prices, no matter earnings etc.
Now combine that with a mountain of shares from OLBs to be sold, from insiders (KP promised to sell all of 2001), from frustrated shareholders, and where do you see short term the price going? And this is in the best of a high volume bull market - what if the market goes south, taking NITE business with it - so how does the long term price prospects look? Good luck with your new purchase!
Anyway, keep your eyes open.
Morgan |
