My point about S3's future concerns the immediate to intermediate period regarding it's price structure not it's viability as a company with a strong product line. As I mentioned in another post I have followed this company for several years. You won't find me arguing against S3's products, future products, management capabilities or the company's financial resources. I have read the posts on this thread and all I keep seeing are glowing reports about products and market share and seemingly everyone cyber high-fiving each other as to the wisdom of their selecting a stock whose next stop is 30. Nothing wrong with that. After all, I bought with the same anticipation. Only thing, S3 is GOING down - 30% since its high in Oct. while the Nasdaq has climbed almost 11% since the election. Why? Why should a stock, whose leadership and market share is undisputed, get pounded on every attempt to break out on the upside? Why does the stock fail to respond when Wall Sreet keeps telling everyone that all is good? Where does logic fail when investing in a company that is number one in its industry, sells everything it can produce and is projected to achieve 35% growth in EPS find itself unable to sustain an upward move.
I have heard that the reason the stock fell this past week was because its projected revenue growth for Qtr 1will be a measley 5%. Not great, but considering that S3's 1st qtr is its weakest and that the pundits on Wall Street have determined that the market will return, what?... 10% for the year - mmm...let's see that comes out to 2.5% for the Qtr. Not bad. So, how come the stock remains under pressure?
My spin for what's it worth. I did not hear the conference call following the release of earnings last Monday, but I did read the posts of those who took notes and shared them with us. It was reported that Qtr 1 margins would expand and op. exps. would contract and that is good news. It was also stated that the houses had reiterated their support with little or no change in their projections, also good. I read, however,
that the tax rate will increase from 35 to 38%, that Qtr 4 revenues broken down by regions showed that 67% of sales were non-US and that analysts were unable to get management to clarify the company's direction beyond qtr 2. It is the last two items that bothers me most. The recent and continuing strength of the dollar can only put the squeeze on profits. The strength in Qtr4 GDP and the increase in wage costs will compel the Fed to raise and not lower interest rates. The first has a direct impact on the company while the latter affects the economy as a whole. What does that say about S3? It will make a ton of money this year while maintaining it's leadership position; however, I see it's future today amidst clouds of uncertainty - not with it's products or maintaining it's lead as numero uno, but with it's ability to keep market share. If I am a fund manager and I am looking beyond the next six months, what do I see? 20-25 companies feasting on plenty when in comes fat Albert. And even if Albert is clumsy at first the fact that everyone has to make room for him unsettles all.
Has anyone look closely at S3's volume of recent past. This is a company that has 58 mil shares with a float of over 33 mil., a market cap of nearly 1$ bil and it's trading average is under 2Mil a day. Has anyone noticed how this trading is made up. The flow of money into funds is the lowest seen in the past 15 years. These managers are investing as fast as they receive it, but it doesn't seem to flow towards our beloved stock. Personally, I feel that the average day of trading should be 50% higher than it is. What is missing is about a million shares a day of 25k, 50k, or 100k trade allotments. What this tells me is that while the house analysts are proclaiming good tidings for the retail crowd the managers are having their clients look elsewhere.
The graphics accelerator industry is a hot, sexy market. It should do as well as those companies in other related computer markets, but it is not. S3 is running lead in a race that has too many competitors and it can't run any faster than it is now. It's lead is destine to narrow and I think the big boys see this and are staying away. That is why I said S3's price has peaked. Consolidation has yet to take place and when it does no one has the financial resources, i.e. cash, to acquire and eliminate their competitors without dilution of earnings. It will have to be done thru debt and/or stock. The companies are not large enough and the industry is too competitive to raise and sustain margins that allow it the privilige to do so. The market determined last Oct. that this was a 23 3/4 stock. On Oct. 17 and Jan. 20 we witnessed the fall of S3 on two of it's heaviest trading days over the past five months. If the average trading day is 2 mil and and on these two occasions we saw an additional 3-4 mil trading hands, who did the dumping? I can't believe it was the retail crowd, so it must have been the big boys buying on the rumor and selling on the fact. We who remain have been bamboozled.
I know this has been a long thread but I had to get this off my chest. This stock is treading to a descending right triangle with bearish implications. CHPS, CRUS, TSNG have fallen. TRID cannot break out from under its ceiling. The future is bright and I believe potentially rewarding for the patient and asute investor but until then I do not see much upside gain.
Of coarse, tomorrow is another day of trading and if I should be the horse's rear I will stand in front of the bathroom mirror, pronounce myself STUPID 100x and proceed to the burning of my trading receipts.
O, the joy of investing,
Keith |
