Marvin,
There are a couple of things in your post that make the credibility of this "top analyst" questionable.
This is my take on what he said.
<He had no real current information though. He thinks they could lose money this quarter but doesn't really know>
I don't consider an analyst "top" unless they stay on top of the companies they follow so they can say more than he said. It seems to me from his comment that he doesn't really have any idea what is going on at the company and has done little or no analysis. Why then should I believe or act on what he says?
In addition, according to First Call, three analysts follow the company and they have a mean estimate of 6 cents for the current quarter with a range of 8 cents to 5 cents. If he is one of those three, then why doesn't First Call show a loss on the low end of the range?
<However, we both agreed that this should be a bottom although the true bottom is about 5.00>
I think the absolute bottom is near book value at 7 3/4 although I don't see it trading that low unless they lose money several quarters in a row. What rationale would an analyst use to estimate the bottom of a stock like IRF at 2 3/4 below book value? The company would have to have some serious financial problems to justify that kind of a discount to book. Sorry, but I don't see it on the balance sheet. In addition, as of March 1998, IRF had $6.04 per share in current assets (excluding prepaid expenses and income tax) broken out as follows:
Cash: $0.76 per share
Short term investments: $0.30
Accounts Receivable: $2.52
Inventory: $2.46
Even IF they write down the value of their inventory, it's absurd to put a floor of $5.00 on this company when one looks at the balance sheet. What basis does this so called "top analyst" have for making such a claim?
I will say this however, somebody big wants out of the stock and I'd like to know who it is and why. Do they dislike IRF or do they dislike the entire semiconductor sector? If this fund is trimming back their semiconductor holdings overall, then it doesn't bother me that they are selling IRF. But if they have singled out IRF, then it does concern me. The problem with IRF is that it only trades 200,000 shares a day on average and if a fund with 2 million shares wants out, there isn't enough liquidity and they can move the price dramatically. As a point of comparison, INTC trades on average over 15 million shares a day so they would have much more liquidity to sell that stock if they are also dumping it. The fact that I see large offers day after day and hammering at the bid leads me to believe that a fund is selling a large part of their position. They can't do it in one day given the average volume so they show up every day and get rid of a little bit more. This kind of distribution near a 52 week low is troublesome, but not as troublesome if they are selling semiconductor stocks in general.
I'm still holding my position because I think the stock is too cheap to sell right now. Fund managers aren't always right and whoever is selling might be making a big mistake selling this stock at 0.91 x sales and only $1.75 above book value. I believe we are going to see a turnaround in semiconductor sales later this year and into 1999. If that happens, then IRF will move substantially above today's 9 1/2 price.
I sincerely appreciate your talking to this analyst and sharing his comments. However, I disagree with his conclusion. While the stock may certainly go lower, it seems ridiculous to put a value of $5.00 on the company unless a serious deterioration in their business is coming.
Dan |
