Hi Dale & the rest,
I've got two ideas today. I haven't developed the thinking
mode for shorts, so both are longs. Currently, I have no
position in either, but after a certain Dec 22 event, some
committed cash may free up. I'm in no hurry to buy long
positions in the current market.
First, we have Creative Computers, ticker MALL. Do not confuse
them with Creative Technology (CREAF) which is currently taking
a bath for unknown reasons. MALL is a catalog computer and
supplies seller. It trades at a PE of 25-30, with a price
around 12 1/2 today. The reason for interest in this stock
is that it has some really impressive earnings projections.
Trailing earnings are 0.45, FY 97 estimates are 0.54, and
FY 98 estimates are 0.96 (from First Call). Zack's indicates
5 analysts covering the stock and a FY 98 estimate of 0.91.
If the company maintains a 25 PE
and hits these estimates, we get a double in little over a
year. Further, MALL is at the low end of the PE range for
its peers (CDWC, NSIT, -- MWHS is having problems and is
probably not a good comparison).
--> Any reason to believe that MALL's estimates are excessively
optimistic?
Second, there is Avid Technologies (AVID). AVID makes non-linear
digital editing systems for movies and television. They are the
leader in this market and have a very strong position in the
Hollywood market. At the SIGGRAPH conference, some folks used
the term 'Avid' as a generic form of editing system, as in "You
can edit it on your Avid, and I can do it on my Avid, then we
can ftp the results for comparison." (actual quote). Now, when
you first look at AVID, you'll shriek in horror at the PE of
63. Not to worry, the trailing PE includes a significant loss.
Trailing earnings are 0.46, including a 0.23 loss. AVID made
0.69 in the first nine months of the year. After next quarter,
there will be no loss and the PE will come to a more normal
level. The game is to choose what level. Forward PEs are
about 30 for FY 97, and about 21 for FY 98, based on estimates
of 1.05 for FY 97 anf 1.52 for FY 98. Give the company a PE
of 40 (with a 50% growth rate) and you again get a double in
a little over a year. Further, if the PE of 40 is awarded in
the spring, a large part of that jump occurs sooner rather than
later.
--> Problem with AVID is that revenues don't seem to be going
anywhere fast. What's a reasonable expected growth rate
and PE?
Keep in mind that I am just researching these ideas. I have
not made any decision. Would like to hear other thoughts and
opinions.
jg
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