From Briefing.com
New Era of Networks (NEON) 42 13/16 +3 13/16: After seeing its stock cut in half on talk of competing IBM products and a possible missed quarter, NEON fights back today by preannouncing upside surprises on Q1 revenues and earnings. The company said that Q1 revenues will be in the $40-41 mln range relative to expectations of about $38 mln, and that earnings will be "somewhat better" than expectations. NEON is in the enterprise application integration (EAI) space; their software and services enable companies to integrate Internet facing applications with core operational systems to facilitate end-to-end automation such as order fulfillment. Its competitors in this space are a laundry list of hot momentum stocks: Active Software (ASWX), Mercator Software (MCTR), TIBCO (TIBX), and Vitria Technology (VITR). As the table below illustrates, NEON is very cheap relative to its peers. This low relative valuation traces back to a misstep last year, when it warned on July 6 that it would miss its second quarter numbers, and indeed revenues fell to $26.1 mln in Q2 from $29.1 mln in Q1. A sequential revenue decline would not be fatal for most old economy stocks, but steady, sequential growth and positive surprises are de rigueur for new economy stocks. NEON's stock was crushed. While it ultimately clawed its way back to a new record high of 96 1/4, it quickly imploded with the first hint of a possible missed quarter. That's the legacy of an earnings warning for a momentum stock -- it is tough to ever regain that momentum given the memories of the last implosion. If you ignore that one missed quarter in 1999, NEON looks much like its competitors -- a tremendously successful company operating in a hyper-growth sector. Its top-line growth is a bit slower, but that is because it is one of the more mature companies in this sector, and boasts higher revenues than the rest. TIBX is certainly comparable in terms of revenues and boasts a strong growth rate, but does it warrant a market cap of better than 12 times that of NEON? (Note that for consistency purposes, the table only includes calendar Q4 data, and that TIBX operates on a Nov quarter-end.) Because of its one miss, NEON's valuation does not even come close to its peers. With today's positive preannouncement, we see that NEON's strong business momentum continues and for long term investors who can stomach the occasional anxious moments that are a function of this company's past indiscretion, NEON certainly offers a more reasonably priced option in the EAI space. - GJ
Company EPS Revs Yr/Yr Mkt Cap P/S
NEON 0.21 $38.6M 41.3% $1.3B 8
MCTR 0.40 $31.0M 108.5% $2.2B 18
ASWX -0.19 $11.6M 272.0% $1.7B 37
TIBX 0.01 $33.3M 95.7% $16.2B 122
VITR -0.18 $12.2M 215.2% $7.2B 148 |
