Jozef:
There are 2 companies competing in the same sectors, flash and cpu's.
1. Company A, 1/10th the size of Company B, reaps revenues of $13.26 per share with an expected revenue growth rate of 40% or better. Company B with $5.25 revenues per share (i.e 40% of Company A's) looks to grow at 10% (i.e 1/4 the rate of Company A) with some luck.
2. Company A has recently entered the potentially very profitable server space, once the uncontested turf of Company B, and, in its 12 months, has garnered huge wins from all but one of the largest OEM's. Company B is stumbling, fumbling and bumbling in its attempts to counter Company A's foray into its server space. Recent trends indicate strongly that Company A could gain 25% or better of this market within the next 12 months with hugely positive implications for its profitability.
3. Company A is the world leader in NOR flash and has recently introduced its novel MirrorBit flash product which, based upon current indicators, is being received very enthusiastically in the marketplace. Company A's crossover to flash profitability looks to have occurred in q1, and, assuming flat pricing the rest of the year, and given planned cost savings driven by migration to more efficient production processes, looks to reap large flash profitability going forward. Company B, a smaller, flash producer than A, is currently mired in losses in its flash division without a convincing roadmap to recovery.
4. Company A is intent on bringing its highly successful "Opteron-like" (from the same core and hence huge cost efficiencies)cpu's to the masses immediately. Company A is confident that the masses are ready for 64-bit computing, particularly inasmuch as Company A's 64-bit offering provides a seamless pathway to this next level of computing. Company B is intent on offering "same-old, same-old" 32-bit-only dinosauric product to its customer as long as possible. Company A's new offering is performance competitive with any Company B product offering in 32-bit mode and is less expensive, while at the same time offering its customer base the opportunity to evolve seamlessly into 64-bit computing.
5. Company A currently trades at $17.45 and Company B currently trades at $28.12.
Question: Which of these 2 companies looks to have the more promising near term future, or for that matter longer term future? Company A or Company B?
Well, Westmont, at Smith Baloney has produced a report containing much of the foregoing preamble, and on the basis of same, has concluded that a reasonable 12 month price target for Company A is $12 (down $5.50) and a reasonable 12 month price target for Company B is $38 (up $10)!
(Hey, I guess that's why he gets the big bucks from a large Wall St. investment house...He seems to be able to arrive at desired conclusions (i.e. Smith's Baloney) despite overwhelming indicators suggesting that exactly the opposite outcome is much more probable!) |
