It's been awhile since I made a long post on CUBE (previous posts were on AOL's Motley Fool), but here's my two cents worth. CUBE has had a rough time lately, but I don't see anything wrong with the fundamentals. It's amazing to me how far CUBE has gone down since ESST made a cryptic announcement about having Sony as a customer. CUBE has since stated that they only won a small contract for low-end VCD chips that CUBE did not believe was worth bidding on. I believe this shows prudent judgment on the part of CUBE's management. They have so many opportunities in the next few months, concentrating on the most profitable ones sounds reasonable to me. The CUBE bears are out in the strongest show of force I've seen so far. I even find this encouraging. They sound strident to me. They're coming up with all the crazy rumors they can think of. They look very nervous. The thing I pay the most attention to is sales and earnings growth and how that compares to the P/E ratio. Trading at around 17 time next year's earnings (based on estimates I believe are seriously understated) and growing faster than 200%, this stock is the biggest steal I've ever seen. No wonder the shorts sound nervous. ESST doesn't worry me. CUBE will never have 100 % of any market. No one ever does. CUBE has the broadest product line in the industry. Their dominance of the encoder markets shows they still have the technology lead. The insider selling is somewhat worrisome, but since insiders were forbidden from selling for most of the year (due to the DiviCom acquisition) the selling has not been too bad. Insiders still hold around half the stock (according to Dec 6, Daily Graphs). Dr. Alex hasn't sold any yet. Doesn't sound like panic time to me. The largest problem I see is that STM continues to lead in the MPEG-2 decoder market. This is unfortunate, but being a strong #2 in MPEG-2 decoders while continuing to dominate the MPEG-1 decoder and both encoder markets still sounds good to me. I also liked the press release on the new MPEG-2 decoder chips. Sounds like an excellent approach to functional integration. Perhaps these chips will allow CUBE to take some market share from STM (I do like STM and I'm long it also, I just like CUBE more). I also like CUBE's management's approach of keeping the hype down and only making real and significant press releases. Good luck to all of the people who have been hyped into buying stocks like ESST, MPEG, CAWS, and IDID. Companies of substance do not require hype. Look at the press releases of companies such as INTC, MSFT, and STM. They do not overhype vaporware and minor contract awards. I'm glad that CUBE behaves like the second camp. Digital Video has the most promise of any industry I can see today (remember there are many more TVs in the world than there are PCs and every field I've ever heard of that went from analog to digital never goes back. So a semiconductor company that focuses on digital video sounds great to me). And CUBE still has the strongest position I can see in the market. Perhaps I'm wrong, but I'll wait until numbers come out that clearly indicate this. I'm not bailing due to rumors propagated by the shorts (in general I have nothing against shorts; I frequently go short. These boards sometimes unfairly dump on shorts. I'm always willing to listen to shorts, but so far with CUBE all I've seen are unsubstantiated rumors). A couple of weeks ago some friends of mine asked at what price they should buy into CUBE. They didn't want to buy while CUBE was in its downtrend. I told them that due to the Santa Claus rally I was expecting and then the January effect I though instead of waiting for a certain price, they should buy on Christmas Eve. Still sounds good to me. I also admit that this next earnings report is critical and no one should put anything but risk money into CUBE. But gee, I like risk. I've been long CUBE for over two years, and for the first time I have more options than stock (I've been buying Feb 45 and 50 calls). I'm looking forward to a very happy January.
Rick Kiray
PS. Don it's good to see you back and see you're still interested in the CUBE. |
