Rambus (RMBS) - Eagle or Penguin Message Board

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Rambus (RMBS) - Eagle or Penguin

RMBS 104.71

+0.6%

Dec 9 3:59 PM EST

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

To: Michael Wilson who wrote (2420)	11/21/1997 5:52:00 PM
From: Fred Puppet	Read Replies (1) of 93625

Michael posted an excellent analysis of RMBS's future. I've seen the same scenario play out with many story stocks. Here's how it goes: 1. A small company is the first to enter a new niche market. Gross margins are high because there are no competitors. 2. Analysts and investors observe that the niche is growing, and apply a high P/E to the stock. Implicit in this calculation is the assumption that as the niche develops into a large market, competition does not arrive and drive down margins. 3. The stock soars. People try to justify the valuation based on expected earnings 3 or 4 years into the future. 4. The niche does grow into a large and lucrative market. Huge competitors with deep pockets enter the market. They decide to gain market share quickly by selling at cost. 5. The original small company now must compete on cost, eroding earnings estimates and share price. Michael's friend has postulated an interesting twist on step 4: Instead of a major competitor moving in, all the customers gang up and develop their own product. I believe it.

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next