A lot of people here have problems with why ISTN's stock isn't hitting new highs and has fallen these past few trading days. In a nutshell, ISTN has achieved:
Revenues have increased for 5 straight years, EPS is up 4 straight years, and Net Profit Margins are up for 3 straight years. Expected EPS growth for 1 year is 32%, Margins are up to 5.6% from 4.5%, average industry p/e is 23, all ratings are a strong buy, 4,491,000 shares outstanding, 26,856,000 in cash, 5.81 in cash per share, Management owns 44% of the outstanding stock, Group rank is A, and Cash provided by operating activities is 5,500,000+. Funds owning ISTN: 2 (a lot of improvement is possible here).
That is all very impressive for a stock whose P/E is 16.3 and the company has managed extraordinary growth - in all categories. So what's wrong with this picture?
One method described by Peter Lynch to aide in evaluating companies is to subtract cash per share from the share price to get a more accurate picture of what one is paying for each share of common stock (since hyopthetically speaking, the company could buy its own shares with the cash sitting in the bank). Doing so would yield a share price of 2.70 indicating a p/e of 5! Not to mention the fact that there's at least another 1$ in cash per share being provided by operating activities.
Just about every aspect of this company is ideal. Low capitalization, good relative strength, moderate industry, p/e far less than industry average, growth rate is far above p/e ratio, etc. etc.
I'll end with this final note as a means of explaining my position with regards to ISTN:
From Lynch,
"Often there is no correlation between the success of a company's operations and the success of its stock over a few months or even a few years. In the long term, there is a 100% correlation between the success of the company and the success of its stock. This disparity is the key to making money; it pays to be patient, and to own successful companies." Sell a company because the fundamentals deteriorate - not because the sky is falling.
Those that sold out due to weak technical factors (you don't use a Moving Average for a stock that was consolidating), best of luck to you. It's common knowledge and usually isn't contested that the fundamental factors will outweigh the technical ones. And I do believe in incorporating TA as a useful tool - but only that. I by no means trade based solely on its signals. Perhaps you'll see "The Hound of the Baskervilles signal" pop up on your trading screens. :-)
Conservatively Yours,
Raymond J. Norris |
