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Strategies & Market Trends : Roger's 1998 Short Picks
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To: Greg Jung who wrote (7370)4/19/1998 11:05:00 PM
From: Roger A. Babb  Read Replies (1) of 18691
 
Greg, I agree that EPS would be greatly lowered for most tech stocks if all options were properly accounted. CTXS is a case in point, see posts on the CTXS thread for an exhaustive debate on this point. CTXS has 41 million shares outstanding, but has hit its 60 million limit due to shares reserved for options and is increasing the share total to 150 million. EPS calculations were reported using 44 million shares, not the real obligation of 60 million resulting in a 36% overstatement of earnings. There are several tech stocks in this same ballpark.

Some argue that the options should not be counted yet, or use some funky computer model that discounts them. But the fact is that the obligation to issue the options exists and there will soon be a larger number of shares to spread earnings over. These stocks must grow total dollar earnings at a rapid clip to keep EPS from shrinking because of the growing share total.
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