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Technology Stocks : FORE Inc.
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To: Glenn D. Rudolph who wrote (3187)5/16/1997 3:39:00 AM
From: MetalTrader   of 12559
 
Glenn,

If I understood high tech stocks I would probably agree with you that FORE is difficult to value. But I don't, so I don't.

After all we are really just comparing rates of return on investment with T-Bills and the like aren't we? Well we should be if we aren't.

Next year the consensus estimate for FORE earnings is $0.52 cents. I've seen as high at $0.55 and as low as $0.40. Assuming the $0.55 is realistic (at least I like it more) we're talking about a 35% growth and a return on $16 equity of 3.4%. Not really earthshaking. Assuming that growth accelerates up to 40% we are still only talking about a return of 4.6%. And if you price the stock at the growth multiple of say 35x projected earnings you end up somewhere between $14 and $18 today and about $28 in two years time - about a 30% annual return. Perfectly good, but not the type of thing that makes the blood of the trade boil and rush into the stock. Whether you value it as an earnings vehicle or a equity growth stock it doesn't have the fire to really move upward.

Fore's management has agreed with the growth rate between 25 and 35% as reasonable. I don't believe that the any networking products from this time forward will give a lengthy proprietary advantage. There is simply too much competition. So any growth above the industry average will have to come from market share penetration outside of a simple technical advantage. That brings us to the buyout scenario. It has a logic to it but all indications are that FORE will try to maintain its autonomy with strategic alliances.

I think we can look forward to some price momentum simply from earnings acceleration during FORE's late second and third quarter and the fact that a price move from the mid teens to the mid high 20's in 18 months rather than 24 will begin to attract money and start the ball rolling again. But I would bet on the view that an investment in FORE will be dead money for the next 4-6 months.

I do believe there is a logic to FORE combining with a deep pocket powerhouse of some sort. That is what keeps me from selling the stock. That and the fact that it makes no sense to sell something for what its worth unless you can buy something for less than its worth. And those companies aren't glaringly obvious for the most part in this market.

So Glenn, to summarize I think FORE is cheap below $14, expensive above $18, and right now worth about what it's going for. Although I would hate dearly to part with a stock that has caused me so much pain before it has rehabilitated itself, unless I saw compelling evidence (evidence, not rumor) that something was happening I would sell at $20 if it get there within the next quarter but I suspect I will own this baby for a good while to come.

But then I have a disadvantage of not understanding the tech world so I might not have a clue how to value this damn thing either.

mt
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