Mike, here is a group of stocks that may be heading for bankruptcy......
Are These Tech Companies Headed For Bankruptcy?
by Chris Connor
Senior Technology Analyst, WallStreetCity.com
As Wall Street and a tough economic environment combine to punish the entire technology sector, a plethora of tech companies are in danger of becoming extinct. One example of the trouble that technology stocks are experiencing is the amazing number of stocks that have been delisted from the tech-laden Nasdaq. In the first half of 2001, over 250 stocks were delisted compared to just 240 during all of last year. Simply put, the current market environment will only support companies that have solid balance sheets and business models. The time for half-baked ideas and shaky business models in order to cash in on the latest technology craze is finished. Now companies that have failed to execute properly could be headed for bankruptcy or be taken out of the public markets at discounted acquisition prices. For example, Digital Island {ISLD} is being acquired by Cable and Wireless {CWP} and NBC Internet is being bought by GE {GE}.
To find a list of potential bankruptcy candidates, ProSearch screened for stocks with share prices below $5, a high percentage of debt to equity, negative earnings acceleration (deceleration in this case), and negative interest coverage. Disproportionately high levels of debt may suggest that a company has leveraged itself too much and may have placed itself in a financial hole that it could have trouble emerging from. Earning deceleration is the watchdog that spots when a company's profits are heading south, which usually means that business is deteriorating. Negative interest coverage is extremely useful for finding companies in trouble because it means that a company is not making enough money to cover the interest payments on its heavy debt load. When a company defaults on its loans, bankruptcy is normally not far behind.
Company Ticker Price Debt/Equity Acceleration Interest Coverage
Exodus EXDS 1.69 163.9% (462.2) (4.0)
Metromedia Fiber MFNX 1.44 84.5% (11.6) (2.2)
Terayon TERN 3.91 158.6% (2082.2) (43.2)
Metricom MCOM 2.29 307.3% (1464.3) (49.8)
NBC Internet NBCI 2.13 680.4% (12297.7) (138.3)
Western Digital WDC 3.38 620.9% (62.3) (9.0)
Mpower Communications MPWR 1.19 179.3% (1081.8) (5.1)
Williams Communications WCG 2.72 225.7% (171.8) (1.1)
Internet Capital Group ICGE 1.71 98.2% (3343.6) (37.0)
Elcom ELCO 1.70 108.5% (127.2) (13.1)
Innovex INVX 3.74 54.4% (589.1) (6.1)
Ibasis IBAS 2.86 98.9% (271.0) (6.9)
Norstan NRRD 2.81 512.8% (30.0) (8.9)
ITC Deltacom ITCD 3.70 469.9% (13.9) (0.6)
Metromedia International MMG 2.90 79.8% (341.4) (1.3)
Global LT Telecom GBT 2.00 350.0% (841.2) (1.4)
Vodavi Technology VTEK 0.73 54.1% (478.8) (1.8)
eLot ELOTC 0.37 1635.5% (130.4) (9.7)
Brocker Technology BTGL 0.55 63.3% (1420.0) (5.2)
ViewCast.com VCST 0.75 135.4% (25.0) (14.0)
Primus Telecomm PRTL 0.89 865.9% (20.0) (1.0)
Relm Wireless RELM 1.09 99.4% (390.4) (1.4)
Flag Telecom FTHL 4.96 115.5% (15.2) (0.6)
Digital Island ISLD 3.38 106.2% (3672.5) (133.9)
Now let's take a closer look at two of the more high-profile companies listed in the table above.
Exodus
This is one former Wall Street darling that has been taken out and shot over the last month. For starters, there have been major concerns over Exodus' business, web hosting, because of the dot-bombs and excess data center capacity. Then the company recently lowered guidance for its second quarter and rest of the year. EXDS also made news when an analyst recently stated to the public that he had been wrong about the company and could no longer recommend his customers to buy the stock. Going forward, EXDS has a hard road a head of itself because it not only has to generate enough revenues to at least cover the massive fixed costs of operating the data centers, but it also has to pay off considerably more debt than the $150 million that it retired recently. The bottom line with EXDS is that the fundamentals of the web hosting business did not justify taking on a mountain load of debt.
Metromedia Fiber
Metromedia's debt situation is not near as bad as Exodus', but this well-known fiber optic network company still has its share of mounting troubles. According to a recent article by TheStreet.com {TSCM}, Moody's may downgrade MFNX's senior unsecured debt. This potential debt downgrade comes on the heals of an earnings warning about a weak 2001, because of the economy and declining sales. The company projects that it will generate revenues between $400 to $420 million, while it had been previously forecast to bring in revenues of $478 million for the year. To compound matters further, MFNX has been dragged down by the misfortunes of some of its customers and partners. For example, Winstar Communications {WCIEQ} agreed to purchase $300 million worth of dark fiber from Metromedia over a 25-year period and supply Metromedia's AboveNet division with long-haul backbone services, but WCIEQ recently filed for bankruptcy on April 18. In other words, Metromedia can forget about that purchase order ever being paid for. If more customers run into financial problems, MFNX will be hard pressed to realize its significant potential in the burgeoning metro optical networking industry. |
