TO ALL.
Hi Allen. I totally agree with you that Greenberg's comments were misleading, and I like to raise some more points, besides reiterating some of yours.
Over the last two days, I have found a lot of depressing analysis of the earnings reports. But I have to say that the depressions are largely self-inflicted, and can be contagious. The reasons for those analysis are either greed (for shorts) or fear (for longs), two most powerful drives that can strip people's rationality and judgements. I did not expect that, the ill-founded or intentionally misleading, negative analysis spread in this forum and in Motley fool since the earning release, has created a blood bath far more bloodier that I imagined.
The bottom line is that (1) IO is fundamentally better than ever, (2) its performance in the 2nd quarter was as good as most people expected, and (3) its current price is undervalued and is a result of extremely irrational response to a fundamentally very good news.
Let's just ask ourselves a few questions and we will realize that the stock can only go up from here ($22.5).
1. how many companies hold a near-monopoly position in an industry with a growth rate of at least 100% a year over the next a few years? None.
2. how many companies with such a superior position trade at a price below 40-50 times of its current year's earnings (1996)? Let's take Ascend as an exemple. ASND does not have a secure monopoly position, and the potential of growth is only 50% a year, yet the low range of its price is now more than 50 times of its 1996 earnings.
3. how many companies that beat the street (professional) estimates drop 20% of its value in one day? None. It is clear that today's reaction was extremely irrational and will be corrected next week.
4. is the company's fundamentals better than ever? yes, with its aggressive marketing, acquisition of the Quantum plant, and alliance with Seagate, IO is more secure that ever in holding its monopoly position in both high-capacity floppy market and removable harddrive market. Otherwise, Compaq won't have been so soft about its position on LS-120 and Seagate won't have allied with IO.
5. did IO beat the street estimate ($0.11) by a big margin ($0.14)? Yes. KE could have legitimately reported as earnings the $4M that instead have been allocated as rebate for the 3rd quarter. Since the rebate program started on quarter 3 (July 1), no accounting practice required KE to move 2nd Qtr earnings to a rebate program starting in 3rd Qtr.
6. why did the street keep silent about this $4M REAL earnings??? Why did not they say that the earning was actually $0.14, but a prudent management preferrd to keep a low profile? why did not they do something to keep the innocent people from being confused and scared?
7. why did KE not sound as upbeat as we hoped for? Because armchair amateurs tend to take their fantasy as reality and project unrealistic earnings figures that are humanly unachievable. KE wants to cool down the hot-heads and foot everybody on real ground. By moving $4M earnings from Qtr 2 to Qtr 3, a traditionally weak season, he will have a lot more room to move around in the next a few month. So that when most companies anounce dissapointments in Oct., he can give people a bit pleasant surprise. His main goal seems to try to reduce the volitility of the stock. But, unfortunately, his prudent moves have been taken by some people to confuse others and themselves, intentionally or unconsciously.
8. why did the street low their estimates and downgrade IO today? They know that many IO shareholders are novice investors who look for their guides in MF or in this forum, and a lot of them are confused, scared, and have reacted irrationally early this morning. It is a safe play for them to downgrade IO for now. But as long as IO holds its ground, analysts can change their positions overnight. Just think how quickly the street can change its mood. When the May unemployment number was announced, the street first reacted very negatively on Friday, but became very upbeat the next Monday.
9. why, with so many positives, did the stock tank today? A classic example of why small investors lose: confusion>fear>selling>lower price>more confusion>more fear>more selling. This a comman mistake made by many novice investors. Sharks know this just too well. They do not want to step in at the very reasonable price now. They want to see more bloodshedding before making a kill.
Do we want to be trapped in this fear-selling cycle and send our hard-earned and -saved money to the fat sharks? Selling at the bottom is the worst way to trade or invest.
I hope that everybody visiting this forum to use their good judgement, not emotions, in making their trading decisions.
calm and profitable trading,
Byron/Biao
P.S.: I will post this on MF, too.
P.S.: I could not copy and paste this text into AOL MF. Can someone else do it. A lot of the massages there are quite depressing. We should show people a different way of seeing things. |
