Gordon,
Peter Lynch wrote a great article in Worth magazine: 97/09 Small Cap Carnage.
worth.com
If you want to know one of the reasons Quidel's stock price has been undervalued, read the article. Here are some points Peter made that I find relate to Quidel:
Peter says: "I don't want to suggest that none of the companies that have suffered in the small-company sell-off deserve their fates. To the contrary: When a stock takes a bad fall, there's usually a reason, though in times like these the damage is often out of proportion to the problem. Our job as investors is to identify the problem and evaluate it. Remember: Finding cheap companies is no more useful than it is difficult. The profit is in finding cheap companies that have turned or are ready to turn the corner." One big problem for Quidel was the BD suit. Well that's been resolved, so now Quidel's "turned the corner."
Peter sees three market possibilities: "The least likely scenario is that we will have more of the same--huge companies will continue to dominate. There is no historical basis for believing that the gap that began to open up last May will continue. A somewhat more likely scenario, because you can never forget that this kind of thing can happen, is that big-company stocks will fall sharply and take the rest of the market with them. Believe me, if a large-stock correction happens, small stocks will go down, too. The third and, I think, most likely possibility is that large companies will go sideways for a while and small companies will begin to close the gap." Peter goes on to say, "Your research into small companies should serve you well whatever develops. You aren't trying to call the bottom for the small-cap market or for any company. You're looking for companies that will consistently earn money, because they'll be rewarded for it." Well, if Quidel's as undervalued as I think it is, Peter's thoughts strengthen my opinion that Quidel's going to do just fine when its upcoming reports show good earnings growth, product announcements occur and the small cap market takes off.
Mike |
