Viasoft is an excellent stock, but what about the company? Message Board

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Technology Stocks : Viasoft is an excellent stock, but what about the company?

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To: ram yariv who wrote (98)	1/20/1997 9:19:00 PM
From: B. Pasternak	of 169

My analysis of this company is as follows: What is it worth without any year 2000 profits ? Its 5 year range of price to book value is 3 - 6.7, so assume it would be worth 7 times book value which equates to about 4 times sales (oracle sells for about 6 times sales but has a much higher profit margin and much better track record and dominates its market). This values the company at $200 million without any year 2000 profits. The first call consensus profit estimate for 6/98 is .76 and about .25 for the six months ended 6/97. With 16,811,000 shares outstanding, they are estimated to generate $17 million in profit through 6/98. This increases the company's value to $217 million. So, the question is, how much year 2000 profits can they generate between 7/98 and 12/99 ? Since they are for the most part on the consulting end of this business, which involves substantial labor costs, their current margin on this business is about 25% (per the 10Q for the 3 months ended 9/96). With a current stock market valuation of about 925 million, the company would have to generate $708 million ($925-$217)in year 2000 profits between 7/98 and 12/99 to make the current stock market valuation reasonable. Even assuming their gross margin increases to 50%, after G&A expenses and a 40% tax rate, their net margin would be no more than 20%. Therefore, to generate 708 million of net income, the company would have to have sales of $3.54 Billion in this 18 month period. With current annual sales of about $50 million, there's no way in hell they could even reach $1 billion in sales. Therefore, the company is grossly overvalued at the current stock price. Could anyone please tell me any reason why this analysis is off the mark ?

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