Response to Intentional
By: vocco
Reply To: 8102 by Intentional Saturday, 29 Apr 2000 at 7:07 AM EDT
Post # of 8108
Intentional:
Nice analysis. I am surprised the authors did not mention institutional ownership. NETP's is very high at 48% and 65 institutions and the 50% growth quarter by quarter is also impressive by any standards.
A few comments using your points:
5. In reality, the price-revenues ratio is much lower than the 13 you suggest. Your revenue figures at $38 million are low. Assuming the 50% sequential growth you used, then revenues in 2000 will be about 100% higher at $77 million. At least one analyst (Hidden Assets) has forecast $50-55 million. Even when NETP was at $66 it was still priced at 25%-50% lower than other companies in its sector. (The price to growth figures are also drastically low).
6. It is stretching history to say that NETP went to 14% of its high. The gap down to $10 (after it had achieved a high of $66) lasted probably no more than 90 minutes of trading time. The immediate V shaped reaction was to take it back to $27. The current retracement of that rally is normal after such violent movements in a stock price. The movements were not unique to NETP - almost every company in the sector experienced similar. I think the authors were not referring to aberrations like unusual market crashes.
8. The reference to fast web sites is not directly relevant to NETP, as you said. But the authors were right to give a weighting to speed. One of NETP's distinctive contributions to the web sites (or phone-call centres) of its customers is to provide them not only with the capacity to make personal real time recommendations to their customers after comparing their interest with very large populations and large inventories, but to do this in fractions of a second.
10. You said that the number of analysts had fallen from 10 to 8. The number of firms listed on the web site is 10 one of which is presently changing the assigned analyst.
While this does not compare with some of the companies the authors mentioned, it compares favourably with companies in the sector, such as EPNY, whose market capitalisation is much higher.
Your conclusions are spot on. NETP has never been given the same valuation as its peers. The original cause of this was that its IPO last April came during a lull in the market so that it never got the exaggerated lift-off others enjoyed. Retail mometum traders then stayed with the familiar high-flyers. It was not until 6-8 months into its public life that NETP was noticed as being grossly undervalued. The recognition given it by Briefing.com, Steve Harmon (top 10 picks for 2000) and Yahoo Individual Investor then helped to popularise it. But during this period the stock was being bought aggressivley by institutions.
Even the move from $15-66 was based more on price comparisons within the sector rather than an aprpeciation of NETP's intrinsic fundamentals. So when the sector's valuation fell NETP necessarily fell in sympathy. Most investors did not understand what NETP did and were therefore unable to appreciate its strong fundamentals.
The company has a responsibility and an urgent need to bring about an improvement in its valaution. It has to explain what it does more clearly for retail investors, explain its business model, and make reference to its valuation by highlighting its achievements and comparing them with peers. Recently it has improved its presentation but only in reaction to market events. It needs a proactive PR policy which has clear goals:
1. Coverage by more analysts and especially by major houses.
2. Recruitment of more retail investors.
Retail investors come through a finite number of influences: (1) brokerage house recommendations (2) mentions on key TV and Radio broadcasts (3) articles by gurus (4) familiarity with the product or company.
One tool which could be used to better effect is the NETP web site. Much of the language is "technocrat" and "academic". The names of products and processes are bland. It over-estimates the intelligence and patience of investors. It should be more graphic, use more concrete and emotive images, and provide an impressive demonstration of the products. (It is not good enough to suggest that readers go to customers sites like CDNow and try the recommendation engine - frankly it does not work for me).
3. Increase in share price.
Traditionally, companies approach this objective in the following ways:
1. Share buyback.
2. Stock-splits
3. Spin-off divisions.
4. Talk to analysts.
5. Proactive PR campaigns.
1 and 3 are not appropriate for NETP.
|
