butter,
Bottom line is that high fixed-cost businesses, e.g sectors with large manufacturing/real estate investments are hurt when sales slacken. Good examples are semiconductor equipment manufacturers, hotels, bars, and restaurants. (I.e., you can't fire a machine-you have to keep paying for it regardless of current production throughput). So margins shrink.
CREAF as a multimedia company is more of a "lost volume seller"- at least that's the legal term for it. Margins are not affected by volume of throughput in the company, but remain the same (all factors being equal) for each individual sale regardless of whether a company sells one or one million of its "product x". Thus a 4.75% assumed drop in sales for CREAF assumes a 4.75% drop in revenues.
BUT (and here's my catch) Hambrecht & Quist issued a report on the Internet about three weeks ago and analyzed in depth Internet stocks. But the report contained data also relevant to companies like CREAF. HQ noted that Europeans' demand for more sophisticated personal computers would grow tremendously through the Year 2000 as Europeans' linkup by the millions to the Internet exploded first in Germany, the UK, and France, followed by Japan, Korea, and then Scandanavia, Spain, Italy, and eastern Europe.
HQ for e.g., noted that the majority of European PC's to date were sold without modems. That is now changing. HQ did not address this factor as HQ was focusing solely upon Internet stocks, but I also personally reason ipso facto based on this report that European demand for peripherals which allows proper sound/sight links to the Internet will also need to follow suit-especially people who link to the Internet to play in some of the fascinating ongoing Internet game rooms (my personal favorite is "Air Warrior" where you fly World War II aircraft in massive dogfights against opponents from all over the world)". That's where CREAF comes in (especially if costs of manufacturing peripherals drops due to the Asian currency issuesor Europeans-based tech companies turing more to efficient ECM's to do contract manufacturing- go to the SFLX Thread and read Joe Dancy's article posted tonight on use of ECM's in Europe).
So even if total CREAF product demand fades 4.5% due to Asian economic issues, how much of that fade will be picked up by increased demand in Europe in 1998?
Now I looked about a week ago at CREAF's yearly chart. Generally after a "nosedive" (excepting the prolonged 6-week drought last March/April), CREAF takes about two weeks to begin to regain its footing. Retracements averaged 50-100+% depending upon an individual pullback.
So like a baseball manager, a rational bet upon the odds would be for CREAF to regain footing in about two weeks- somewhere right out there around the December 19th Options expiry- gamble anyone?
Now that analysis is subject to weird rumors appearing from nowhere and being fanned by day traders. Since pressure/sentiment is down currently, most "weird" rumors would likely come in the form of an upside rumor- an upgrade by a brokerage house, or a reconfirmed buy" or "sell" rating by a brokerage house (now with a 30% pullback in just 4 days, a reconfirmation of a "buy" rating is a more likely rumor)., or very unlikely, a buyout rumor and finally the press release connected to the December 11th Annual Meeting.
Finally remember that the worst predictions for the 1998 market suggested a 25% pullback in stocks say two three months ago. Well you just had a 30% pullback in CREAF- a stock which is rumored at worst to have mild sales falloff problems (BTW- a rumor I do not believe).
Finally CREAF the Company itself does not seem to be too concerned about stock price gyrations. That suggest to me that business conditions have not changed significantly in the last few weeks- or at least enough that CREAF feels the need to "cover their posterior".
So a rational bet from a fundamental perspective is to expect CREAF to stabilize where it's currently priced, and then to gain at least some upside steam in about two weeks.......
Sincerely,
Doug F. |
