Hi Steve
To complement your point to SW, stocks do not trade
at the mean estimate of their future earnings,
which would be risk-neutral.Investors also throw
in a risk aversion factor, typically measured by the
standard deviation of fluctuations around the mean, to
gain a margin of safety. In other words, a stock which
operates in a very predictable environment will trade
higher than one which operates in a highly changing market,
even if both of them have the same value for their
future discounted earnings.
I do not view this as a technical or psychological
factor. It is totally rational that investors should
take in account the possible risk of something terribly
wrong happening, which is obviously larger for WCII
than for say, a toothpaste company.
With respect to being able to obtain junk bond
financing, I am really surprised that so many analysts
seem to think that sound CLECs would find it difficult
to obtain such financing. The US economy was not
looking particularly rosy in the 90-93 time frame.
Yet, didn't WCII get its first junk bond deal
around 92 or 93? I do not see how 99 or 2000
will be so different, particularly since the company
is much stronger now.
Best regards,
Bernard Levy |
