AVID's up about 35% from its low just a couple of weeks ago, when I got back into the stock. It's not often you get returns like that in such a short time, so I'll probably get out now that it's around 20. The bounce came from slightly better revenues and a less-worse-than-expected loss of (.17)/share.
However, IMHO, this will not be a $40+ stock again any time soon. If I believed that, then I would keep it as a long term growth issue. (I have successfully and profitably ridden up the last two cycles, each time getting out before significant downward trends.)
In answer to your question, note that earnings have been falling since the 3Q95 high of $8.8 million (on revenues of $114.4 million.) First Call estimates a mean EPS of $0.01 for the next quarter, not exactly inspiring. Estimates for FY96 are for a loss of ($0.48)/share, and for FY97, $.48 per share, again, not very exciting. At $20/share, that's a PE of about 42 on projected '97 earnings.
I do believe that Avid will finally post a profit next quarter, but they have already posted a loss of ($26.5) million for these first six months. They won't be able to offset this by the end of the year in order to break even or show a profit again. The most they've ever made in one quarter is $8.8 million. Even taking out the restructuring charges and product transition costs of ($20.2) million, they still have a substantial loss of ($6.3) million so far. These are the numbers that the institutional investors are looking at.
I believe Avid will be stuck in a trading range between $15 and $22 per share for quite some time. For those who bought in at the recent low, consider at least taking some profits. You'll no doubt be able to get back in on a dip.
Nonlinear editing is still a fast-growing market, but in Avid's case, obviously not as fast as it has been up to mid-1995. Avid is still the market leader by far, with a great product that is used in more professional settings than any other. I still use it and love it. However, the company's strength and value is based on its software, which makes the third-party hardware work so well. At about $30K for the software premium, there's a lot of room for competitors to come up with something almost as good for a lot less. Imagine where Adobe would be if Photoshop was $30,000, and only professional photographers and publishing houses could afford to buy it. True, Avid does offer a lower-cost entry level system, but their bread and butter has always been the fully featured Media Composer line, which ranges from about $50 to 100K.
Anyone owning or following AVID should also be paying close attention to DATX, Avid's closest competitor. Between the two of them, they probably have over 90% of the market for nonlinear editing systems. DATX has suffered a steep share price decline in recent months, and may offer an opportunity to diversify risk in this segment. They are making money, unlike AVID, having earned $2.5 million for the first six months of 1996, or $0.29/share. The stock is trading around $12, nearly half of where AVID is now, for a PE of around 16. DATX is introducing several industry acclaimed products, including their high-end flagship professional system, which will compare even more favorably with AVID's Media Composer line. And they are splitting into two separate companies to focus on its nonlinear editing business. See my posts in the DATX forum for more information.
D. Kuspa |
