CPCI - great earning , BARRON's suggest Message Board

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Technology Stocks : CPCI - great earning , BARRON's suggest

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To: csm who wrote (546)	6/5/1998 4:08:00 AM
From: PaperChase	Read Replies (1) of 586

>>I don't understand why you say they should use cash and stock for acquisitions while the stock price is low, wouldn't you do that when the stock price is high?<< Actually, I didn't make a very accurate statement. At the time I wrote that I was thinking that CPCI might be acquiring a private company. Quite often, a privately held company might require some cash in the deal given the volatility of a small cap company's stock price. I've seen more than a few private companies get burned after being acquired where they took only stock in the deal and later on saw the stock price collapse. (My train of thought was on private companies because I have spent some time recently looking at privately-held telecom equipment companies that are acquisition targets.) For the most part, new stock issuance is the preferred currency today. Regarding any CPCI share repurchase, I still think it would be a waste. Their cash resources should be directed towards R&D and acquisitions that could strengthen the stability of top line revenue. As we can see from the recent earnings warning CPCI issued, the variability of their top line revenue is swinging their EPS estimates by a huge margin. The wording in their press release confirms this: "today announced it is lowering its estimates for the fiscal third quarter, ending June 30th, to $7.0 to 10.0 million in sales and 1 to 17 cents earnings per share." IMHO, it makes little or no sense to buyback shares while variability of top-line revenue can swing the EPS up to 17 cents in the quarter. The goal is to get to a point of stability in the top line revenue even if this includes diversifying their product offerings. As long as revenue and earnings remain inconsistent from one quarter to another, CPCI will trade at a significant discount to its "fair" value. I have found that many investors view tech stocks with the same perspective as let's say a Walmart. Emerging tech companies, more so than other types of companies, need to spend more and more and run faster and faster just to stand in place. In this type of "live or die" environment, cash should be deployed quickly and strategically for growth in top-line revenue while controlling underlying expenses. (These comments are not meant for a mature tech company like IBM.) You made a very good remark in your post that I think reveals a lot about how CPCI management is thinking :"the company was sitting on a lot of money and seemed incapable of putting it to use in an acquisition." So the question that needs to be asked is why isn't CPCI management being more aggressive and strategically deploying its cash? Good luck with your trades.

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