Earlie, while we're on the subject of the SickOne, I had been pondering the effects of dilution (past, present and future) on Sicko's valuation. They obviously have been using ESOP's as a de facto replacement for paying wages for some time. Employees will no doubt be demanding cash instead for some time to come, which will hit their earnings (instead of their balance sheet). Since Sicko's stock has plummeted nearly to 1998 levels,
stockcharts.com[w,a]waclyymy[pb50!b200!d20,2][vc60][iUb14!La12,26,9!Lg]
It's amazing how many more shares of CSCO have been printed since the highs of '98 (for less earnings, since their operating income has not been growing for some time now, and will clearly be in decline for the forseeable future, if Mr. Chambers is to be believed).
3.48 billion in January, '99: biz.yahoo.com (adjusted for the 2/1 split in 6/99, but not the 2/1 split in 03/00)
7.76 billion in January, '01: biz.yahoo.com
Share increase = 7,760,000,000 - 2*(3,480,000,000) = 800,000,000 (!)
In other words, 800 million paper confetti shares "created" for acquisitions and pay for the conscripts over the last 2 years, with NO corresponding increase in operating income for the last 12 months! Such is the life of a New Millinium growth company.....
The point of this exercise is that so many commentators have taken to statements like "Tech is washed out" or "tech is dirt cheap" or "the same thing happened in '98, and look how buyers made out then". What's missed is that: 1) CSCO is a LARGER cap company now (due to the magic of dilution), even at the same split-adjusted price. Therefore incremental growth is incrementally more difficult to achieve 2) It's not 1998 macroeconomically speaking (and a much more uunfavorable environment for stocks of Sicko's) ilk and 3) EPS was still rising in '98 for Sicko (even though it was tainted by their accounting chicanery then, the same accounting tricks will not even produce ANY earnings growth for at least the next 2-3 quarters if not years.
Buy the dip? I THINK NOT! Give me a call when it gets to book value, and we'll talk..... |
