Another comment on NMGC. The Fool snapshot numbers have been
updated to reflect reality (or the street current version of it).
hoovers.com
Yet there still remains a discrepancy.
Take the 0.53 in TTM EPS, and assume that NMGC hits its number
for 1/98. That gives 0.21 vs 0.04 year ago and an estimated
0.70 for earnings in 1/98. Why do the analysts give only an
average of 0.60? This must be due to some some leftover year
end estimates by analysts (only 5 on this stock at Zack's) who
are not really following quarter by quarter and has not updated.
Hence, the street estimate of forward PE is significantly
higher than it should be. Come earnings release, a good surprise
could be in the offing if folks are playing against the published
year end estimates instead of looking in detail.
---------------------------
From the recent 10-Q, here's one small red flag:
"The Company's products are used in, and its business is
dependent on, the personal computer industry with sales
primarily in Asia, Japan, and the United States."
and
"Export sales accounted for 83.1% and 95.4% of net sales in
the three months ended October 31, 1997 and 1996,
respectively. Export sales accounted for 82.8% and 94.8% of
net sales in the nine months ended October 31, 1997
and 1996, respectively. Approximately 71.7% and 69.8% of export
sales for the three and nine months ended
October 31, 1997, respectively were to affiliates of United
States customers. The Company expects that export
sales will continue to represent a significant portion of net
sales, although there can be no assurance that export
sales as a percentage of net sales will remain at current levels.
All sales transactions were denominated in U.S. dollars."
--> Hence, the asia problems have probably added uncertainty
to the stock. With a strong dollar, their product is getting
pricier and they may have to drop prices earlier than expected
in the product cycle. If they have competitors that can sell
denominated in asian currencies, it is a disadvantage.
Another thing to note:
"Five customers accounted for 16.0%, 15.4%, 14.1%, 12.8% and
10.5% of net sales for the three months ended October 31, 1997."
--> That's 69% of sales to 5 customers. Loss of any one would
have a significant impact.
And another:
"The Company expects that it may need to raise additional equity
or debt financing in the future."
--> To be expected from a small, fast growing company. Expect
share dilution and look for good ROE.
And finally, the competition:
"The Company's principal competitors include Chips & Technologies,
Inc. ("Chips & Technologies"), Cirrus Logic, Inc. ("Cirrus Logic"),
S3 Incorporated ("S3"), and Trident Microsystems, Inc. ("Trident").
On July 28 1997, Intel Corporation announced its intention to
purchase Chips and Technologies."
"Chips & Technologies, Trident and S3 have publicly disclosed
that they have or will begin sampling an integrated multimedia
accelerator solution for the notebook PC market that would
directly compete with the Company's products. Potential
competition also could come from manufacturers that integrate
a microprocessor with a multimedia controller. Although Intel
has not announced any such product independently, its
relationship with Chips and Technologies could yield some type
of commercial product in the future."
---------------------------
==> Overall, the 10-Q makes a good read. Lots of discussion
that is usually only in the 10-K. They are playing in a niche
and seem to have gotten there first. One has got to believe
that the competition will arise during 1998, but will it only
slow their growth or stagnate them? The list of current OEMs
is impressive. Can the bigger guys adapt to this niche quickly
or is the technology of integrating multimedia acceleration
and DRAM a difficult trick?
==> By no means a sure thing, but a play at least to
earnings announcement in Feb 98 seems interesting. Gotta
watch the competition, though.
jg |
