<...since this stock has been deeply wounded, I don't suspect it will be a survivor ...If it's around 1 year from now as MRVC, it will still be in the lower double digits. Believe me, if the technology is that good, it will be shopped.>
Your's is a thoughtful, reasoned post. Historically, the probability is that you are right. MRVC has been badly wounded and I suspect that 90% or more of companies so hurt don't survive.
I'm betting however that you are wrong. I have three reasons.
First, the stock has been mauled, but otherwise all of the elements of its earlier success are still in place. It is well-financed; it has plenty of cash. It retains all of its key personnel and specialists(its "pool of talent") and claimed at the CC that this was even increased.. No one has ever suggested that its technology is backward or out-of-date. It is -from all I've been able to learn - an extraordinarily lean low cost producer. Even given the huge,and unexpected, increase in sga and r&d, it remains profitable. Revenues increased sequentially this last quarter (Q3) and EPS came up short only because management wanted to maintain "market share and mind share of customers." In this last goal they were successful,although gross margins dropped from 43% to 38%. However, according to Sector Investor who attended the annual meeting, this was a one quarter phenomena. These are the objective fundamentals for all viable companies and as far as I can see, they are intact for MRVC. If not, tell me where I am mistaken.
The second reason is company morale. This is one of those intangibles that can kill a company. At the CC, Noam said that they were deeply disappointed with Q3. But are they demoralized? I listened very carefully to the CC for precisely this reason; I wanted to gauge how the devastation in the stock market might have affected morale. My strong impression was that management BELIEVES that it can pull it off; that they BELIEVE they have some dynamite technology and that they will market it successfully; that they believe this despite the legal caveats they mouthed. Remember that this is a company that had 34 straight quarters of sequentially increasing earnings. Do you believe that one profitable quarter where revenues decreased 4% has demoralized this company? With its record? Did you listen to the CC and come to a different opinion regarding morale?
Finally, I don't believe the company is going to sold. You said that : "Believe me, if the technology is that good, this stock will be shopped." This is really the weakest link in your argument. It doesn't follow that if the technology is good, the company has to sell itself. I understand that size does matter when it comes to carrier class technology: in terms of visibility, credibility and deliverability. But these qualities are not the exclusive province of large companies. More to the point - and this again is subjective - my impression from two years of carefully following this company's management is that selling out would be their absolute last resort. It's simply not going to happen; despite the fact that I wish it would.
As to the future stock price, today we had a perfect "marubozu" - the stock rose continuously from the open and closed at its high. At 7 1/2, we are back where we were last Thursday afternon, just before the very "bad" earnings news was released. I won't pretend to know how high this stock is going to rise; but tomorrow it will rise.
JMO
Bruce |
