From tonight's Motley Fool report:
(http://www.fool.com/FoolPort/FoolPort.htm)
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At times, little will test a Fool's patience more than a dog stock with a great
underlying story. In this case, the mutt is 3Dfx (Nasdaq: TDFX). Watching
this stock trade is something like reading a news column by Hemingway in
The Toronto Star. You sense wasted potential. At least old Ernest knew to
flee for higher ground when the time was right, but with 3Dfx, when will the
time be right? The stock did receive respect today, bouncing up 10%, but
that's hardly consolation. Why is 3Dfx trading so low in the first place?
This stock's largest downfall might be the fact that it represents a
semiconductor chip seller. If 3Dfx somehow convinced the market that it
sold software, for example -- rather than technology on a chip -- the stock
might be trading at a P/E of 50, rather than at 9 times this year's earnings
estimate of $1.91 per share. The market is especially fickle when it comes
to semiconductor investments. The mistaken hoopla of 1995 (i.e. semis will
never trade at such low valuations again, this is the new age of an
non-cyclical business!) stung investors when it proved incorrect. That past
now makes everyone even more gun-shy when it comes to valuing
chip-related stocks.
So even if 3Dfx grows earnings 200% this year, the stock might continue to
trade at 8 times 1999 estimates and the market might simply... well, shrug.
Like the 100-year-old lady pitching that giant expensive diamond into the
ocean at the end of The Titanic movie (you might have seen it) -- an
uninterested shrug was all that she could muster. That's about all the interest
that the market is mustering for 3Dfx, too, and until that changes, the
valuation is unlikely to rocket. It's more likely to just stay afloat or even sink
(though we're hoping we've hit bottom by now!).
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Chip |
