Let's play a game. Let's assume that we are the owners of a stock that we bought over a year ago, for a price that we realized was a real bargain.... for less than 80% of sales and below book value. This company had fallen on hard times, and was really in disfavor in Wall Street. Nobody followed it, few people had heard of it, it was showing a loss, it had disappointed institutional investors who had dumped the stock unmercifully, and the management was being scorched and trashed by many who had taken a real bath.
But we realized that there was considerable value there under the surface. So we bought.
Now let's assume that a year has gone by. The management has brought out new products that compare favorably with the competition, which are expected to ship in increasing volume over the next few quarters; has stemmed the red ink and the last quarter was profitable; has attracted favorable comment from a major investment banking firm that has made a major investment in a subsidiary; and has enhanced a prior reputation for being tight-fisted with stockholder's money, and runs a tight ship.
And the stock price! Wow! Let's assume that the stock price, having gone up a mere 13 times , has now taken a breather, has corrected 15% from its highs, and is showing signs of being accumulated by strong hands.
Let's also assume that the market leader in our field, the big kahuna, is selling at an absurd market multiple of 60 times this years earnings! [Yeah, I know what Cisco really sells for, but stay with me for now.] Now, I grant you, that multiple is just absurd. But to make it worse, there are a whole bunch of start-up companies in our field that are coming public. And some of these companies are doubling in their first day on the market! And they don't even have any earnings! And some of them are selling at 6 times sales expected next year!!! And we don't even know if these companies will make money or not next year!!!
But OUR STOCK is selling at 320 times analyst's estimates of this years earnings!!!! Of course, we expect the company to make a lot more money than anybody else expects, and so WE think it is really selling for only 80 times this years earnings. Which, for a company that we expect to grow at 35% per year going forward, ain't exactly cheese.
So what are we? We are just as happy as clams, that's what we are. In fact, we are downright delirious!! Were we ever smart!! Why, our stock sells at a price that would make the big kahuna in our business jealous as hell.
So what is my point?
Simply that we have all been spoiled rotten. Spoiled by the insatiable demand for tech companies, by the moon-shots by IPOs, by the bubble that makes prior bubbles look like placid pools of water, by the absolutely insane valuations of competitors in optical networking and related fields, and by, most of all, our own greed. In a nutshell, we are unhappy ONLY because our relative valuation does not compare favorably with others in our industry. And so we are jealous.
And I am certainly not immune to these feelings. I understand them well. And I sympathize.
But you know what? I am still happy as a clam. And I am more than willing to give this management a few months, or a few quarters, to produce, press releases or no press releases. And if they produce, and we see orders...shipments...sales...profits...and coverage...then I will stay, and be even happier. And I won't give a rat's ass how unforthcoming they are. And if that means waiting for triple digits until late this year, or even into next year, great. I'll still be here. And if they don't....then I'm gone. With big profits and a grateful....thank you for a helluva run.
BP |
