Still Doing Due Diligence.
Well, if I miss the train on this one, it won't be the first,
and I doubt if it will be the last time that'll happen. I try
not to rush into my investments (I make enough mistakes as
it is!). Anyway, the great thing about the stock market is that
if you miss one train, there'll always be another one along.
I've found making hasty judgements, (especially in a sector that
is new to me) has resulted in some bad investment decisions on
my part.
Anyway, right now I'm interested more in what you and Sam think
about the $41 million write-off that ESON is taking on their
merger with Cardiometrics. When you add in $6.5 million in
merger related costs the total write-off is $47.5 million.
Now revenues for all of 1996 for ESON were only $24.4 million,
so they are writing off an amount that is TWICE as great as their
total revenues for all of last year. If you want to make a 1997
comparison, revenues for 1997 look to be about $7.2 mil per quarter
for yearly revenues of $28.8 million.
Another way to look at it is ESON's market cap is about $175 million.
So a $47.5 million write-off is about 27% of their entire market
capitalization.
I'm not an accountant, but the write-off figure strikes me as
very large both in proportion to their revenues as well as in
proportion to the entire value of the corporation itself. And
we aren't even talking about earnings yet!
Like any consumer, you have to pay for what you buy. And like
a corporation, there's a vast difference between what I make
in salary (revenue), and what I end up taking home after all
the deductions get taken out (earnings). Since Endosonics
earnings are very, very small at this time (even though it was
5 cents), the amount of the write-off really concerns me.
Should I be, or am I just a worry-wart!
PS - I want to believe, but I also want the odds on my side
if I am going to invest. Right now, I don't know what the odds
are, and I want to at least understand them. I know that Kam
is a heck of an investor, but I don't want to just blindly follow
him/others...I mean if he were ever to reverse direction, do you
think you would know it in a timely fashion? No you wouldn't.
And neither would I. That's why you (I) need to understand all
the issues so we will have a feel for the values involved.
Hope you can add some insight.
|
