Bob, go back and read the old PMAT thread and you will get a better idea of this long-running discussion between Dave, Zeev, Robert Henry, and myself. To make an analogy to a cowboy riding on the range who buys a new pasture on the other side of the river, the old discussion was something like:
Dave and Robert: "The grass sure looks green over there"
Zeev: "Watch out, the river is filled with quicksand"
Carl: "Thanks Zeev, you're right, it does look like quicksand".
The current discussion is more like:
Dave: "Well we did get bogged down a bit, but that grass still looks mighty green"
Zeev: "It doesn't matter because we're stuck"
Carl: "We're sinking, but we don't have far to go, and we just may make it, but we're going to be awfully weak and tired when we get there".
I believe that I am the centrist here. I take issue with the idea that I am trashing the company. My earnings forecast was dead on for the quarter, except that I didn't take into account the settlement agreement with the R&D Partnership. I believe that I have a very realistic idea of the challenges and hurdles ahead. The only thing that I can't fully evaluate is how compelling the technology is - i.e. how tasty that grass will be if and when we finally get there.
Sales are increasing, and I see diminishing losses ahead. I believe that Q3 will be better than Q2 was, but post conference call I had to reduce my forecast for Q3 due to their warning that it wouldn't be that much better. I believe that Q4 will be substantially better, but not quite breakeven. I have concerns about the balance sheet and concerns about the cash position, and I believe that in order to survive and grow they will ultimately have to issue even more stock. But I believe that they have a reasonable chance to succeed - which I now put at 60%, and if they do succeed, the return on the stock will be excellent, well over 100%. But if they don't, return will be substantially negative. Accordingly, I hold a small position in this stock, about 1% of my portfolio, and I am keeping a close eye on them because as the possibility of success increases I may want to increase my stake. If they had been able to improve their cash position by collecting some AR, I would probably have done that now, but at the present time I am still waiting.
Is it trashing management to be critical of how they have handled the conference calls and relations with analysts in the past? Perhaps. But I believe that it is justified. This company could certainly use some more experienced and professional leadership at the top.
As for how the market would interpret the loss and conference call, I admitted to having no idea and to just guessing. Investing in this company is bottom fishing. There is no doubt alot of bad news that is already accounted for in the stock price. And the news at the conference call was not particularly good, nor particularly bad. So the question was whether or not it was worse than expected. The answer apparently was that while it wasn't wonderful, it wasn't as bad as people feared (or shorts hoped for), so the stock moved up, but didn't hold.
As for where the stock moves from here, the answer would have to be that in the absence of news it will slowly spiral down as the clock is ticking and time is running out, but will move up decisively if and when they get major orders. So where will it be in three months? If they get no major orders, it will be below where it is today. If they get major orders, it will be above where it is today. Another critical juncture will be whether they lose their line of credit at the end of August, and whether they are once again force to issue more stock at these low prices. One other issue that may haunt them is if the NASDAQ moves to delist them due to lack of tangible net worth. This didn't happen last quarter, and it may not happen this quarter (or next), but it is always a possibility.
Just keep in mind that they are in a race against the clock as well as the competitors, and that time is most definitely not on their side. To mangle a beer commercial, the question when bottom fishing is when you can say "It just doesn't get any worse than this". <vbg> Can get it get worse? Yes. But it could also get better. So this stock is at a volitle juncture and in the next several months it will probably move decisively one way or the other. But which way?
Good luck,
Carl |
