I have been a reading this thread and following the Y2k stocks for almost a year now. My biggest regret is under estimating the momentum many of these stocks have seen and been able to maintain. I have taken some losses on DDIM (buying puts and shorting), but at least I made a killing on ZITL's drop from glory. I will now be on the sidelines for some time until the day the "hype" ends and the real story comes out. Although I am primarily a daytrader, and often play momentum and stocks I believe are way overvalued I cannot get myself to go long this stock. Too bad, because I left a lot of money on the table. Sondo and TA have been right and probably have made a lot of money on this dog, but shorts have also made valid arguements and someday their analysis will prove correct. Regardless of the stock price, this company will not be able to catch up to its valuation for all of the reasons discussed by shorts on this thread. (BTW-The report that has DDIM earning over $12 a share is a joke and I may try to personally contact that analyst to ask him how he looks at himself in the mirror) But if Larry and the CFO do (not you Jumper) I guess it can be done.
I will make myself clear on some points before I go on: 1. I have lost money trying to short this stock, but will no longer try. 2. I do think it will go much higher over the next year, as do many story stocks. 3. I think the company did a good job of taking advantage of the Y2k problem to generate impressive revenue growth to turn itself around from being a small,unprofitable consulting firm.
Now, why I cant go long this stock and why some day it will come crashing down.
1. Fundamental analysis reveals very aggressive accounting that will ultimately catch up with them. Covered many times on this thread so I will not repeat.
2. This stock is overvalued even on "realistic" optomistic forecasts.
3. Momentum has been a driving force in pushing this stock price higher, which always ends, because their are no true buyers. Don't tell me about the funds buying either-many have already left, and most involved are hedge funds (i.e. speculators like myself) and look for price movement and not valuation. They will all disappear in a heartbeat when momentum is gone.
4.I trade primarily through a SOES terminal and have watched level two movements and trades that reveal a very dedicated effort by firms such as Cruttenberg, Everen (no surprise here) to move this stock higher. I am not implying MM manipulation-because on Wall Street that doesn't happen. <bfg>
5. Growth will slow starting next year, and the actual arrival of the year 2000 is a real limiting factor in their time horizon to generate revenues. This talk about continued work doesn't fly.
6. Testing a limited amount of clients converted software will result in a limited amount of testing revenue. Their acquisition will not be a big kicker.
7. ARDES 2k is a joke. It is not a substantial revenue generator and never will be. Even ZMAX has a self procclaimed "silver bullet" (one time gold mining and oil drilling company turned Y2k company?)
8. Vague and meaningless press releases, losing key employees, and lack of credibility of management is always a bad sign for the big picture. (Larry Martin's quote in the July Time article stating that "elevators will be dropping to the ground floor" was enough for me to discredit all future testimony from him.)
9.Botswana work will be no windfall
10. Althugh sometimes slow-the market will give it the value it deserves, and consulting firms with small profits get small values.
Now for the important stuff:
I have been lucky enough to spend time with some very successful high level industry people who gave my the real rundown on the y2k problem, or should I say lack thereof. I have no opinion on this stuff (I am a trader and have limited technical knowledge in this field) A very brief summary of hours of conversation will follow. I would have preferred to have them write up something that I could post, but I didn't have the nerve to ask, and as I will explain later, it does them or their industry no good to downplay or expose the truth.
The problem MAY NOT even exist at all-claims that computers will fail is just a possibilty. Some may work, some may not.
The problem only exists on certain outdated systems in one language (don't remeber details-maybe someone else can help). Many firms will replace software and hardware, since their y2k bugets will be very large anyway. Most companies, especially the big players, will be going to vendors for help (i.e IBM) and not the small consulting firms coming out of the woodwork. In-house staff will be used in many cases. Many company branches,systems etc. will be shut down, or operations consolidated to avoid the costs of fixing the problem, and risks associated with them. VCR's, cars, elevators etc.. will be fine. Nice try by the press hype.
At one point in each conversation I asked them why aren't the big boys and companies speaking up (i.e Gates). Both responses-Why? Everyone benefits in the big picture as tech budgets are ramped up to accomodate the problem. Why talk down the problem when some of the money will come their way in one form or another.
Finally, the lawyers and insurance companies are now stepping into the picture. Anyone who knows anything about these professions should get my point. (Not meant to offend anyone)
Sorry this may be long, and not well organized, but I have very little time and not much incentive to clean this up.
I repeat: I do think this stock is headed higher and am not recommending shorting it (momentum can be very painful to those on the wrong side), but felt compelled to finally post some of these thoughts.
K MAC
P.S. TA Trader and Sondo-be happy with your profits. If they are as big you claim then you have no need to attack the shorts. They are hurting enough as it is. BTW-Go check out VVUS and ZONA if you want real momentum. You may have missed most of it-but keep an eye on them! |
