Nancy,
Man, you're demanding.
Book value is the amount LVLT will carry on its books as "Shareholders' Equity" divided by the shares outstanding. It's supposed to be a reflection of the value of the shares if all the assets and liabilities were to be liquidated at the value that they're carried on the books. These values are conservative as they are at the purchase price (depreciated), not fair market value. Assuming there is no "Goodwill" shown as an asset on the LVLT books on Day 1 it should be a clean number as defined above.
What R. Marks is saying in #570 is pretty important. He says that the assets are coming to LVLT at original purchase price, not current market value. If true then I agree with him that this would make LVLT book value appear much lower than that of another company in a startup mode since LVLT would be getting assets that were purchased in the past, whereas a typical startup has to purchase them today. If he's correct, then LVLT's assets will be booked at historical prices which lowers book value compared to companies in a comparable business phase.
Whether Mr. Marks is absolutely sure that this is how the assets are being transferred I don't know. And whether there is that much of a difference between historical and fair value could be the subject of a whole other debate.
Book value is a very conservative. It doesn't reflect the value of potential future earnings. That's why the stock price is almost always higher, sometimes much higher. It's unusual for stocks to generally show price/book at a factor of greater than about 3. When it does happen it's either a great company in a great industry or the stock is overvalued and subject to a potential sharp decline. That's one aspect of all the debate on this thread. LVLT's price/book is at 6 and part of the debate we're all having is figuring out if the standard comparisons to other companies for this ratio are valid. If R. Marks is correct that we're getting a 50% discount on the fair value of assets being transferred then we are looking pretty good. But given that $3 billion of the assets is cash I don't think a 50% difference between book and fair value is going to pan out...just my opinion.
One should NEVER use a single factor to determine reasonable stock price. To do a proper valuation we need estimated revenues, profits, and growth rates for the next 2-5 years. I don't think any of us have that info, which makes this stock a speculative investment no matter what else is known.
The book value has nothing to do with the price LVLT will sell for on the Nasdaq. That price will be whatever the market decides and the starting point on Wednesday will be whatever it closes at on BB on Tuesday.
If the stock splits 3-1 we get 3 times as many shares at 1/3 the price. No big deal.
What's next? - ok, trading vs. investing. Yes, I consider about half my current position to be trading shares, meaning I will look for a solid pop of 10-15% in the first few days of Nasdaq trading then sell those shares and put the money into another short term opportunity. I try to keep a portion of my portfolio in transit, always looking for a place where I will get maximum short term returns. Right now, I'm betting that LVLT stock will soar SHORT TERM when it gets on the Naz.
Why do I think it will soar? Because there will be PR about this new entry in the telecom field, QWST performance envy, lots of people and companies are unwilling or unable to invest in bulletin board stocks (the BB's disclosure and market rules are not as strict), and most importantly it will be marginable. Right now it takes real cash, or two times the purchasing power to buy LVLT as it takes to buy something else. Margin is supposed to be used for taking advantage of short term buying opportunities - a big dip in a good stock for example, but many, many people in this bull market are close to having their available margin fully invested and it makes a big difference to them when cash has to be used. When LVLT is marginable, not only will more people want to buy, dollar for dollar they will be able to buy more than we've been able to buy. In addition, all us current owners will be able to use margin to increase holdings.
I think all of the above lead to a significant spike in demand on April 1 to 7 (or so) that could well be explosive. That's why it'll be fun. After that, I don't think it will drop too much. More likely there will be a period of consolidation at a price a few dollars off the high, but who knows. Keep an eye on it and decide for yourself what to do. There will be some selling for sure though, including my trading shares.
Re: mo-mo, that just means a momentum stock. If it happens to LVLT it won't consolidate after a 10% gain, it'll just accelerate. It may take a few days off then do it, or it might do it from Day 1. No way to predict. Sometimes all it takes is someone important making favorable comments about the stock. Take a look at the chart for SYNT (a Y2K stock) and you'll see what can happen when all the psychology comes together, the planets align, and a buying panic ensues. I think there's a small chance something like that could happen to LVLT. If it does, we'll all make a lot of money but keep an eye on it constantly as it could fly off the cliff at any time.
Phil |
