JDN,
I'll try to offer you an unbiased opinion of PMTC from a fundamentals perspective. First, a little about myself. I am primarily a fundamentals, long term investor. I disdain TA (for the most part), tending to regard it as orange smoke and black magic. I don't invest in IPOs or mo-mos nor do I tend towards "follow the herd thinking". I am currently the treasurer of a small NAIC investment club. Our club reviewed PMTC about a year or two ago and elected to pass on any PMTC investment at that time. (Investors had bid the price up too high for our liking, relative to earnings and future prospects.) I have no current interest in PMTC or any of its' competitors (not long; not short).
Looking at PMTC (if priced around $9 or less), it would appear to be mildly attractive as a 3 to 5 year hold, only to recover to around the $30 range. A future stock price of about $27 might offer that $9 buyer a 3 bagger over a 3 to 5 year period.
The company has some pluses going in its' favor.
1) They have no long term debt. Don't underestimate the value of this plus. The company itself is currently relatively immune to interest rate increases (though its' customer base may not be). Given that the market may be entering a phase of increased volatility due to Fed interest rate increases, PMTC may be able to avoid most of the shakeout from interest rate related market events.
2) There are no preferred holdings. Therefore, there are no preferred dividends to be paid, and PMTC can use its' profits for marketing or development efforts, as it sees fit to do so.
3) There are no dividends to be paid out. Again, profits can be used elsewhere as needed.
4) There is no pension liabilities. If you don't think of this as a plus, look at some of the "old economy" stocks that wear this albatross around their "bottom line". <g>
5) Other pluses would include a leadership position within their niche market, a fairly good and experienced executive/management team and a new product (Windchill) that is anticipated to be well received by PMTC customers.
Let's look at the obverse side of the equation, and there are a lot of negatives, to be sure.
1) Given the recent revenues warning, EPS continues to slide. EPS has declined (on a year-over-year basis) since 1997. In 1997 PMTC reported earnings of $.82 per share. 1998 was $.72 per share. 1999 was $.62 per share. And 2000 is/was estimated to be around $.50 per share, but that figure was before the revenues warning, so undoubtedly the $.50 per share EPS anticipation will be reduced probably to around the $.40 area. This is a long term downward trend. Given the revenues warning, there is no sign of an EPS turnaround for the near term, and in fact, nothing to refute a hypothesis that EPS may continue to decrease over the next few quarters. Remember, the current trend is down, and has been for 3 successive years now.
2) Windchill/Pro-E sales are not sufficient to overcome the revenue loss on the low-end MCAD market. As PMTC has all but abandoned the low end MCAD products to concentrate efforts and resources on the Windchill product, core revenues have been lost. While sales of Windchill have been increasing, this increase has not offset the lost revenues from the other products. Nor has PMTC yet been able to leverage the obvious synergies that should exist between the Windchill and Pro-E products.
3) The cash flow per share appears erratic and seasonal/cyclical. Over the past 5 years starting with 1995, PMTC has reported cash flow per share as $.43, $.69, $.94, $.85 and $.95. For the year 2000, the estimate is $.75, but again that number is now likely to be revised downward. Additionally, within any given fiscal year, the 1st quarter appears to be weak on a cyclical basis.
4) The book value per share appears to be erratic. Starting with fiscal year 1997, PMTC reported BVPS as $2.52, $1.22, and $1.93. FY 2000 was projected to be $2.60 prior to the warning, but will likely face downward revision now.
5) The net profit has been declining and is in a three year downward trend. Starting with FY 1997, PMTC reported NP as $219.2M, $197.7M and $195.5M. FY 2000 was projected at $140M, but undoubtedly will be revised downward now.
6) The total common shares outstanding (adjusted for all past splits) continues to increase. Starting with FY 1996, PMTC has reported total shares as 254.90M, 255.87M, 268.14M, 270.16M and a projected 276.00M for FY 2000. Why? The most likely answers are that the company has used shares as currency for acquisitions, or that the company has an executive/employee stock options plan. If so, does the company also have outstanding, unexercised options? If so, how will the holders of the unexercised options react to the lower stock price? Are any of the options now worthless? If so, will the company reprice the options? Will the company have to offer cash bonuses or salary increases to the holders of any worthless options, fearing that talented employees might look for employment elsewhere? I don't know the answers to any of these questions, nor do I know that any of these questions are really valid for PMTC. I would suggest that one of you who currently has money invested here contact the PMTC investor relations department and make sure that PMTC executives address these concerns during their planned conference call.
7) Net Profit Margin is about 1/2 of where it used to be. Starting with FY 1994, PMTC has reported figures of 27.4%, 25.0%, 26.4%, 27.1%, 19.4%, 18.5% and an anticipated 13.3% for FY 2000 (before the warning). Is this a reflection of higher development and marketing costs for the Windchill product? Again, I don't know the answer.
8) The stock is now out of favor with individual investors as well as institutional investors, which means that there might likely be plenty of shares available on the sell side should any other negative event affect the company.
9) To the best of my knowledge, I haven't seen any mention of a PMTC plan to repurchase any of their own shares at these lower prices. Perhaps it's much too soon for PMTC to consider that possibility given that the huge price drop occurred only earlier this week.
To summarize, I'd estimate future revenues and earning growth rates are likely to come in at under 10% for the foreseeable future, far short of the minimum 15% or higher growth rates that investors in growth stocks would look for, and far short of the astronomical growth rates being achieved by other tech stocks. As the stock has no current upward momentum, current shareholders can forget about the possibility of any mo-mo players bidding up the PMTC share price any time soon.
The bottom line is that yes, the stock now has some room for growth, and may someday recover to its' previous highs, but (in the absence of some extraordinary events) don't look for that recovery any time soon.
Most investors might fare better in another stock for the near term. At best. I see PMTC trading in a range of about $7 on the low side to around maybe $15 on the high side for the near term. I think it will take many quarters for PMTC to initiate a successful turnaround, though I do believe that eventually PMTC will recover. If you have a long term horizon, perhaps you're better off holding the stock. If you need some capital gains losses for this year, now would be a good time to take them in PMTC. I think that you'll be able to buy back in sometime in the future at a price near or lower than what you'd get if you sold now.
All of the above is my opinion, and my opinion only. I am not a professional. Remember, if you take my free advice or any stock chat board advice, you'll get exactly what you paid for. <g>
KJC |
