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Technology Stocks : Echelon Corporation (ELON)
ELON 21.88+10.1%Oct 6 5:00 PM EST
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To: pranadude who wrote (3014)7/20/2002 10:45:02 AM
From: Ted The Technician  Read Replies (1) of 3076
 
Institutional investors might initiate with a SELL. Ever notice that few brokers ever initiate coverage with a SELL or HOLD? Institutional investors might have looked briefly into the company but decided to move on rather than "initiate coverage."

The options expense would affect ELON's price dramatically. It would change ELON's earnings from a profit to a loss. SUN's price dropped by a quarter after announcing that it will make a loss rather than a profit for next quarter( thestreet.com. The earnings/sales multiple for ELON would evaporate once it reports losses.

The CEO of CY came out against expensing options. His reason was that these options are the drivers behind Silicon Valley. I don't agree with his point of view. I see these options is his way of getting rich at the expense of unaware stockholders. Cypress is giving away options and not telling shareholders because the published earnings do not account for the options expense.

I would not be holding onto a stock for the next five years if I found out tomorrow that rather than making $0.12/quarter that stock will now lose $0.07/quarter.
What used to be 50%+ gross margins would drop to around 35% gross margins (which is more normal to what I would expect in ELON's line of business) after options expenses.

Stocks typically head towards book value or less than one times sales when they start to report losses. In ELON's case, book value is about $4.5/share. Its price per sales is currently around 5 - one times sales would bring the price to around $3/share. Be sure the weigh the risk/rewards here.
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