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Strategies & Market Trends : Market Gems-Trading Strong Earnings Growth and Momentum
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To: golfnut777 who wrote (5980)3/7/2001 11:50:17 AM
From: Lane Hall-Witt  Read Replies (2) of 6445
 
golfnut777 -- EXTR: I like this one, too. It has highly respected technology that serves the extremely important metropolitan-area market space, and it gets a significant percentage of its revenues from overseas and from corporate clients -- which means they are relatively well diversified against weakness in the U.S. and in the telecom segment. Its exposure to dot-coms is only 2 percent. EXTR's CFO reaffirmed guidance recently, right after CSCO gave some negative signals.

On the downside, analysts can't seem to downgrade this one fast enough. (This of course is also true for FDRY and FFIV.) They're clearly putting 2 and 2 together and concluding that EXTR is going to get hurt -- probably from overseas sluggishness and caution in the corporate market (which is hurting companies like CSCO and SUNW right now). Also, on an EPS basis, FDRY is a much better value. FDRY has projected EPS of 0.70 for FY2001 and 1.02 for FY2002 (40 percent five-year growth rate). EXTR has projected EPS of 0.47 for FY2001 and 0.91 for FY2002 (47 percent five-year growth rate). Given that FDRY sells for 12 5/8 per share and EXTR sells for 21 1/2. . . .

Of course, the market psychology for this entire space is terrible, and yet numbers may still be too high, so I would not be at all surprised to see another leg down if another wave of warnings hits these companies. I'm out of this sector entirely, because this is just a tough space to do business in right now. I'm waiting to see signs of life before committing money in this direction. I'm keeping my cheat sheet handy, though, because I think there should be good upside here once the sector begins to uptick.
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