PSFT - Fiscal 1998 - Discussion for the next year Message Board

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Technology Stocks : PSFT - Fiscal 1998 - Discussion for the next year

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Oct 29 5:00 PM EST

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To: Lizzie Tudor who wrote (3261)	10/25/1998 8:15:00 AM
From: Elmer	Read Replies (1) of 4509

~OT~ I listened to the ITWO conference call and came away feeling that it will become the gorilla in Supply Chain Management and may even challenge and supplant ERP as an alternative way to run a business. Management is obviously brilliant and honest and investing for market share which is a rare pleasure for a long term investor. So why didn't the price go up much? Well, the primary concern was that sales growth was slowing somewhat to about 40% ($510 million in 1999) and margins are weakening to about 10%. If you do the math, you get flat earnings in 1999 which is not great for a growth company. So the analysts, while they liked the quarter, don't love its prospects. This situation reminds my of something Michael Gianturco, the Forbes technology columnist, wrote in his book “The Market That Beats The Market” (I think he changed the title in recent editions). On page 24 and 25, he recounted the periods of deep stock price weakness of Compaq Computer. He said “...in late 1984 you could have purchased Compaq stock for a split adjusted price of $0.58 per share. This was, amazingly, a price somewhat lower than the company's liquidation value... So this is how the stock market valued the fastest-growing company that ever was. Like dirt. Few investors understood that profits were weak because the company was purchasing a huge share of market and a great victory.” He adds on page 53, “If you focus your own attention on something other than company earnings, such as revenue growth, you will find that conventional analytical opinion opens up bargains for you in technology growth stocks again and again.” I think that's where we are on ITWO. And it's partly supported by management's statement that they are seeing less competition from the SCM companies. ITWO is building the best product and it's not great for earnings but the value is there for customers who are increasingly saying “these people solve my problems and are going to be around and have the best solution.” My guess is that this view starts taking hold on the street and the price starts to move up. We will see. Regards David

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