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Technology Stocks : TAVA Technologies (TAVA-NASDAQ)
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To: Bill Wexler who wrote (18934)6/22/1998 10:35:00 PM
From: Richard S. Schoenstadt  Read Replies (2) of 31646
 
Bill,

I think there is a very good case for Tava being a good short candidate - in the long run.
And it's important that people investing in Tava not be misled by some of the hype they see here about the inevitability of Tava's long term prospects being positive.

However in the short run, you will just be losing your money - unless you can hold for 6 to 12 months or more.

In the short run Tava's earnings and revenues are definitely going to accelerate sharply - imo. There is no almost no question in my mind about this.
If you look at Tava's year 2k revenues in the qtr 3 98, figure that only a relatively small number of employees (about 60 I estimate)were working on year 2k and then look at the number of new employees Tava is adding, you will see why I think there is going to be a sharp acceleration in revenues and earnings.

Based on current plans for hiring you will see the major impact of that in the 4th qtr report (about Sept. 30 last year) and the 1st qtr report.
(Around Nov. 15.).
I doubt very much the stock will fall in the face of that and will very likely rise.

If Tava's additional hiring doesn't continue beyond current plans, then there will only modest increases in qtr 2.

If that is case, it might make sense to start looking to short Tava in November some time.

But if Tava continues to hire new employees you would have to wait until at least January in my opinion.

Even then that may be too early.

The case for shorting hinges on believing that Tava's year 2k revenues and earnings are a one shot deal which can't be continued beyond the year 2k or converted into core business opportunities sufficient to justify the current price.

I think there is a very strong case for this.
But there is also a case for the other side.
It seems to me until revenues and earnings actually begin to fade - and that may not be until the year 2000 - that the benefit of the doubt will rest with those who think Tava can leverage year 2k exposure into significant increase in it's core business.
(Although once earnings and revenues level off, there will be little further upside potential for the stock price imo - at least for many years.)

My current estimate is for Tava to make about .60 after taxes in fy 99. This should easily support the current stock price.
And if Tava continues to hire employees the earnings number could go quite a bit higher.

However after year 2k I suspect a fairly rapid decline in revenues and earnings - over 2 to 3 qtrs.
Even if Tava can convert all it's year 2k employees to core work it will be at lower rates and also Tava will be losing all it's high margin CD and database report revenues.

It would seem to me that the safest time to short Tava is once it becomes clear that Tava has stopped hiring additional people.
At that time there will be very little risk of additional price appreciation and very good chance of depreciation.

RS


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