Kelvin,
The answer to your question is that it depends on the market cap of the company. I think that you have to consider more than just the outlook for a company when deciding whether to buy, sell, or hold. Have you ever seen a stock go up when the company releases bad news, or go down when they release good news? It isn't always so obvious, but with CIEN I think that even with today's poor outlook, the stock is still worth more. Here's why:
Most recent balance sheet
Cash and cash equivalents: $5.23 per share
Debt: $2.10 per share
Net: $3.13 per share
Book value: $4.46 per share
Stock price: $4.00 per share
To put this in perspective, CIEN last traded at $4 per share in Oct 1998. Here is what the basics of their balance sheet looked like at that time.
Cash and cash equivalents: $2.18 per share
Debt: $0.02 per share
Net: $2.16 per share
Book value: $4.71 per share
You can see that CIEN is trading at a lower relative valuation today despite having more cash per share, more net cash per share, trading at a discount to book, and having a better market position than in 1998. The question is would you sell a company for less than it's worth just because they say that their outlook for the next few months isn't good? Another question to ask is can this company survive the downturn? If they do, and given their strong balance sheet there's no reason to suspect that they won't survive, the stock is a strong buy based on fundamentals. In fact, it's an even stronger buy at 4 than it was at 5 thanks to today's bad news. |
