Hi Ray,
Here's how I see ITWO (short term only). The stock has soared the last couple of days, up over 50%. It's approaching the previous "high" and should start running into major resistance. The stock was attractive enough to me below $4 to buy but I don't think that it looks good enough over $6. And here's why:
Fundies look lousy. Quarterly earnings have dropped the past 4 quarters starting at $378, $357, $241 and most recently down to $194 yet operating expenses for that past quarter were equal to those from the previous year (in other words, they haven't reduced their overhead while revenues have declined like a rock in water). Price to sale at $6/share ratio (last 4 qtrs) = 2.2 but if you annualize the last quarter (4x194) we get a price to sales of 3.3, this for a company that just wrote down $5.5 BILLION in the last quarter...ouch!! Licensing revenue in the last quarter dropped over 60% from where they were the previous year. While cash, investments+a/r is about $1billion, they have over 400 million in long term debt, which brings that value about $1.25/share. Expense wise, it looks like all expense categories are flat to up with the exception of cost of software licensing...not too good, IMO. They claim they will be able to reduce expenses another 10% in the 4th qtr and I don't think that's good enough in relationship to their reduced revenue picture.
Too far, too fast, too expensive....that adds up to good short candidate in my book. |
