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Technology Stocks : Red Brick Systems
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To: Sam Citron who wrote (231)4/22/1998 1:27:00 PM
From: Mark Finger  Read Replies (2) of 304
 
>>(3) REDB looks very cheap on the basis of P/S ratios compared to
>>most software companies that are in rapidly growing multi-billion $
>>markets and that are not in danger of immediate extinction from
>>MSFT. Can you explain please why REDB deserves to be selling in the
>>single digits, even though it seems to have some very good customers
>>who desperately need to decipher their customer databases.
The data warehousing area may be growing quickly, but Red Brick is not. 20% sales growth is way below the median in this market sector. Further, the P/S ratio is currently 2. That is pretty high for a company that is only marginally profitable (on an operating basis). Those that have higer P/S ratios generally also have higher profit margins (generally at least 20% at the operating level before taxes).

The other problem is that MSFT is going to start marketing SQLServer 7.0 for data warehousing. Since Red Brick is generally in the lower end of the sector, that means that they are directly in the center of one of Microsofts next target areas. I know that SQLServer will probably still be a joke for at least one to two major releases, but Microsoft tends to sell more on hype that on fact, and that could be a real problem for REDB.
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