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Strategies & Market Trends : Shorting stocks: Broken stocks - Analysis
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To: CMason who wrote (1320)6/30/1998 10:16:00 AM
From: Q.  Read Replies (3) of 2506
 
CMason

You are describing KMAG as a highly cyclical company.

Probably every co. in the magnetic media sector is cyclical, and KMAG is even more cyclical since it is used as a second source by disk drive co.'s with competing captive media divisions.

It's my experience that for good mature tech stocks in highly cyclical sectors, book value indeed does mean something. Much less so for immature development stage co.'s though.

When revenues are shrinking fast and eps and cashflow are negative, p/b serves as about the only multiple you can hang your hat on. Provided you trust that the cycle will eventually swing back, the book value gives you a benchmark to value the stock until the up cycle.

I don't have any problems with shorting cyclical stocks based on one's guess of the cycle. A lot of people do that, and they can often do it quite well. You have to understand the industry, which in your case you obviously know more than me about the magnetic media mfg. industry.
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