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Technology Stocks : Profit from shortage of IT professionals

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To: Rick who wrote (9)	3/2/1998 9:25:00 AM
From: Stewart V. Nelson	of 25

Rick <<You indicate that TSCC has slightly lower growth prospects than CATP. What is this based on ?>> I am glad you forced me to articulate my vision for both companies. I based my estimate of their future growth rates based on my assessment of their current prospects tempered by actual performance over the past five years. (87.5% for CATP Vs. 24.6% for TSCC. <<It seems to me that TSCC with about 1000 employees should be able to grow faster than CATP with over 3000 employees.>> The scarce resource limiting growth is head count. During the last year CATP added over 1200 professionals bringing their total to over 3000. It is also important to retain qualified employees. A strong stock price is important here as a way to increase retention. I heard the CEO of CBSL say that was the main reason they went public! <<if the money is in Internet Commerce, TSCC and everybody else will be there along with CATP.>> I agree with that. <<<Do you agree that its alot easier to grow a 1000 person firm than a 3000 person firm at 50% ?>> Not necessarily. Acquisitions are a key part of their strategy and that is done with stock. The company with the highest valued stock has the lowest acquisition cost assuming you don't grow faster than your ability to manage growth. CATP has a lower cost of capital than TSCC. <<<. Recently, they have issued press releases and interviews that seem to have the sole purpose of pumping the stock price....>>> Depends on your personal bias. It is perceived to be "pumping" if you are short the stock or "increasing shareholder value" if you are a long. Remember their stock price is an important driver of their growth plans. High stock price=High growth rate. <<<<Anyway, I think this is similar to what's happening with CATP - good company, good momentum, but growing too fast and will likely crash and burn a few times before all is said and done.>>> Perhaps...all things regress to the mean eventually, but I have been investing for a long time and have seen companies go from "over valued" to "ridiculously over valued". <<<I heard from a former CATP employee that there is a "hiring freeze" at CATP. Basically, he indicated that internally they are not referring to it as a freeze, but hiring seems to be at a standstill. Part of the reason for this may be to reduce the expenses in Q1 in an effort to meet the Streets expectations...>>> Meeting the Streets expectations is critical to their business plan. I would not expect or want them to do otherwise. <<<If true, the top line growth would probably hit the 50% area and they may be able to make the earnings number, but the growth in net employees added would probably slow - how do you think this would this be interpreted by investors ?>>> Perhaps they need some time to digest current new hires before they swallow some more! I don't think that a slow down in one quarter's hiring would cause a panic. Two quarters would be a problem. I agree with you that they are probably over valued at this point, but they have earned their over valuation by doing most everything right. I would give them the benefit of the doubt at this point. Sims is a veteran. Great discussion. Let's keep digging. I am not buying it yet. Regards Stew Nelson

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