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Technology Stocks : THQ,Inc. (THQI)

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To: Dave Hanson who wrote (6367)	6/25/1998 1:48:00 PM
From: Todd D. Wiener	Read Replies (1) of 14266

Dave- "Declining operating margins? That's a poor reason for underperformance. Obviously, if a company has declining margins, it shouldn't be purchased. That's no mystery." You're correct that the second sentence is unclear. I meant to say that the article uses the phenomenon of declining margins as evidence of weakness in small caps. I think this is poor evidence, because it's obvious that companies with declining margins will eventually underperform. Other parts of the article offer some answers to the apparent mystery of small cap underperformance (for deserving stocks, like THQI). But the statement about margins was out of place, because declining margins at big stocks will lead to their underperformance, too. The bottom line is that small caps deserving of a higher multiple may have to wait a while to get the higher multiple. That's why it's crucial to pick rapidly-growing companies, so that the stocks go up, even if the P/E doesn't. Also, it helps to pick stocks in consolidating industries, because big companies are always looking for bargains. Todd

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