my rules for companies to invest in:
1. Must be the best in the world at what they do. Must have a franchise. I've read most of the last 200 posts on this thread, and I haven't heard anyone (even people who are very long the stock, or who seem to work there) make these statements about MRVC. The consensus seems to be: good technology, good people, average execution, poor marketing. CSCO, LU already have the brand names. Small companies in niches where there is a csco,intc,msft,amat,etc seem to grow fast, until they get big enough to be noticed, and then they get gorilla-stomped. I'm afraid this stock could be on the same trajectory as BAY or SIII or Netscape. No, doesn't meet this test. I've always found it pays to pay for the best.
2. must be growing EPS by at least 20% per year. Yes, meets this test. Actually, the sales growth is more impressive, because it's a more reliable number.
3. must be undervalued. The current PE (21,based on trailing earnings) is less than the expected and historical EPS growth rate, and at the low end of the 5-year PE range (18-89). P/S, P/B, show same pattern. Firm support for the stock going back to early 1996, at about 18. Yes.
4. Must have a long enough track record to adequately evaluate them. Doesn't quite meet this test, because growth depends on moving upmarket, and getting big orders from big companies, rather than selling cheap products to small companies. They haven't really demonstrated competence in this. No.
5. Are sticking to an area of core competence. I think companies can, at most, do one thing really well, so I don't like conglomerates. 80% of sales in one area. Yes.
6. Are funding growth out of cash flow (not selling more shares, or bonds). No.
7. Have an excellent balance sheet, so downturns are an opportunity (to grab market share) rather than a danger (of death by cash-flow starvation). 4.90/share cash, little LTD. Yes.
8. Have no big current or potential liability. Looks OK, they don't make products that kill people, don't have any big lawsuits pending, haven't irritated the DOJ, no unfunded pension liability. Yes.
Yes 5, no 3. I need 8 out of 8, and #1 is the most important. I'll keep looking. Thanks, dobr, for pointing this stock out to me, this was a good exercise. |
