Why DDIM will triple sales and still decline
First, congratulations to all the excellent posts here, both short and long. Sondo, you have obviously done a lot of work and I appreciate your comments. However, I have to disagree with you regarding the outlook for DDIM's stock price. The problem is the current valuation.
I think Keane (KEA) is a fair comp. It seems to be a well respected industry leader, and on DDIM's web page they make hay of the fact that both the CEO, Larry Martins, and the CFO, William Parsons, both worked there.
Currently, DDIM's market capitalization, the implied price you are paying for the company by owning the stock, is $289 million, or 19% of KEA's market capitalization. The problem as I see it, is that DDIM has only 3% of the sales, 4% of the employees, and 4% of the earnings of KEA.
IMO, and using the KEA valuation as a comparison, DDIM must sextuple (600% increase!) sales just in order to justify the CURRENT stock price. In order to outperform, it must EXCEED this increase. And I think I am charitable using the KEA valuation, as its business will continue after the year 2000. Please don't tell me DDIM merits a higher valuation because of its growth; KEA has grown revenues at a 47% compound annual growth rate since 1992 and earnings at 41%.
Unfortunately, I think this will follow the NSCP experience. I shorted it last summer and was actually wrong about how fast they could ramp up the business. I did not expect them to generate 100 mm in revs per quarter as fast as they did. But what happened to the stock price? Its down 67% from its peak because its extraordinary growth could not meet its even more extraordinary expectations.
Also, look at what the insiders are doing. Larry Martin, CEO, sold 100,000 shares on 2/26/97 and William Parsons sold 10,000 shares in February 97. Would they sell if they thought it was going to double in 9 months? Again, congratulations to the longs, you've had a great pick. However, I would be a seller at these levels.
Good luck to everyone. |
