Leuthy,I believe that focusing only on their prospective competition
is not ,in and of itself, a strong enough reason to believe that a
company will suffer margin erosion and therefore a drop in their stock
price.Increasing competition is an important factor when considering
mature or weak companies ,or companies that sell commodity products,
like silver or gold.However,when dealing with strong,vital companies
in a rapidly growing market ,(which is Ascend's current situation),
the worst that increased competion can do is to slow down that company's growth rate.The extent of that slowdown is a function of
that company's relative strength.Frankly, I believe that most of Ascend's current and potential future competitors are relatively weak
(that includes Shiva,3com,IBM,Cascade,Madge, and possibly Pairgain and
USRX)The only company (that I know of )that could pose a serious threat to Ascend is Cisco(imho).Granted that Ascend's earnings growth rate is likely to fall(their CEO has already stated as much),so their
stock price may fall as a consequence.However, given that six months
ago their p/e ratio was double its current level,I believe that the
market has already discounted a slowdown.At any rate I've heard this
story before re:Atmel. Michael Burke has been bashing this stock for
months citing increased competition as the ultimate cause of their
soon to be falling margins.At the time it was trading at around $25/share. MB predicted it would be at $10 within 12 months.Six months
later ATML trades at around $45.
Anyways, an EW chart analysis of Ascend suggests that it will
see $100 before it sees $50.
Happy investing,
Stealthmaster |
