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Technology Stocks : Cognitronics (AMEX: CGN)
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To: JakeStraw who wrote (3)4/29/1997 7:25:00 PM
From: Neil Kalton   of 142
 
j garcia, I thought I was alone here. To be honest I do not have in depth knowledge about CGN. My broker got me in the stock in late 1995. I believe at the time it was his thinking that the British Telecom deal and the introduction of the McIAS 16xx series products would spur demand in 1996. While the British deal helped I think the acceptance of the McIAS 16xx by domestic telephone companies took longer than expected. However, now it appears that the ball is rolling and the orders are piling in.

I am going to contact my broker soon and ask him his thoughts on CGN and I will also ask him if he knows who the company's domestic customers are. Apparently, because the company is so small and underfollowed he has been in contact with the CEO. It may be a couple of weeks before I have timeto call him due to finals. One thing I do remember him saying was that the company was in a cyclical industry that appeared to be bottoming out in the early-mid 90's and that he thought that an upswing was imminent (he sent me 15 year charts which tended to corroborate his thinking).

My thoughts on CGN:
If the company does earn $.60 this year then it does have a forward PE of just 10. Over the past year and a half CGN has traded in a PE range of 10-20 (most commonly between 15-20). Therefore, at $.60 the downside is $6 with the upside being $9-12 by years end (on a recent historical PE basis).

With $.14 in Q1 and the backlog still increasing it is quite likely that the company can do $.30-.32 in the first two quarters of '97. If this momentum is sustained then $.60 may be a layup. I'm hoping for $.65-.70 for 1997.

Questions:
How good an indicator of future quarters is backlog? Also, do you have any idea about the market size of CGN's industry and the industry's potential growth? Can CGN sustain earnings growth beyond 1997 given the industry that it is in?

Thanks for the response and I will look into those other companies that you mentioned. However, with finals looming this may not be for a while.

-nk

BTW I think we could be on to a real winner here for 1997.
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