Covad Communications - COVD Message Board

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Technology Stocks : Covad Communications - COVD

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To: Mark Duper who started this subject	9/7/2000 10:18:06 PM
From: Jeff Olson	Read Replies (2) of 10485

Three things to consider about COVD There are three things that I always consider before I buy a stock; the story, the picture, and the numbers. I'd like to offer up my opinion on these for COVD. The story on COVD is it's a DSL wholesaler who has recently entered the retail market with it's addition of Bluestar. DSL as we all know is growing at a phenomenal rate which by every account should continue to do so. Their recent acquisition of Bluestar should allow them to maintain high margins as price compression leads to lower margins for wholesale DSL service but at the cost of possible lost revenue to the DSL retail companies they sale their wholesale service to. I believe that the analyst meeting on Monday should shed a lot of light on how they are going to handle this problem. The picture on COVD is nothing short of awful. From a high of 66 to the recent trading range of 15-16 makes COVD from a technical stand point a stock to avoid. However the stock has been performing well lately and, should it continue to do so, would stand a good chance of reversing the bad technical picture that it is currently showing. The numbers for COVD are great considering the outstanding growth rates that the company is experiencing. COVD is growing revenue at over 30% PER QUARTER. This compares well with the other high fliers such as VRSN (also with a negative cash flow) which has $154M in YTD revenue but has a market cap of $34.747B or a MC/rev ratio of 225. COVD has $150M in YTD revenue but trades with a market cap of $3B (as of today). This yields a MC/rev ratio of only 20. Of course these two companies are totally different but the performance of any stock ultimately comes down to the numbers. I am currently long on COVD and have recently added to my position based on the current strength that the stock has shown. I am planning to hold until revenue reaches $1B in revenue which market analysts predict will be by the end of FY02. If it maintained it's small MC/rev ratio of 20 this would still lead to a valuation of $20B which is over a 6x gain from it's current price. Of course there are still a lot of unknowns that could negatively impact the price but in my humble option I think the risk is currently well worth the reward.

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