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Technology Stocks : Covad Communications - COVD
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To: Captain James T. Kirk who wrote (1329)10/4/2000 9:14:35 AM
From: BWAC  Read Replies (2) of 10485
 
Captain,

Let me second that thought. I am very sorry that anyone chose to pay a price that calculated out to $9 Billion for COVD at a point in time when it had less than $50 Million in annual sales. I mean just look at those two numbers? Key word is Chose. Whether by analyst prodding, glowing reviews, ipo fever, or pile on follow the chart myopia. The numbers did not add up to a good risk reward scenario or even a relevant valuation. COVD was valued based on its business plan AT LEAST 10 years down the road. Today we have a very different scenario. The market wants to value COVD based on the state of sales, revenue, ebitda, etc. right here right now today. Tommorow is a far away concept.

But tommorow will come. Sales will continue at their exceptional growth rate for the next few years. Ebitda will eventually turn positive. All from a base of the current $1.5 Billion value for COVD. Sales are now on a run rate of 250 to 300 Million for this full calendar year. With the same growth expected next year.

In conclusion. It all starts with the sales. You have got to have sales to eventually produce earnings. The risk reward is now tilted greatly in the buyers favor. It won't seem that way for a while, nor will anybody tell you it is a good buy. But just watch the sales grow exponentially. And in a few years, COVD will be back to its peak valuation. But different this time, in that sufficient sales and the underlying business will EXIST to justify such a valuation.

So pile on out if you must. And next time consider this whole scenario when you initially pay many Billions for a company with few or no sales.
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