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Technology Stocks : THQ,Inc. (THQI)
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To: Kory who wrote (9290)1/12/1999 3:54:00 AM
From: OGM  Read Replies (1) of 14266
 
I would actually prefer that THQI didn't "smooth" their profits. It would mean that their EPS numbers would be more erratic and (hopefully) make their price more erratic. This would cause (1) more opportunities to buy on irrational weakness, (2) some institutional buyers to stay away from the stock until revenues are larger, under the theory that it has small company-style uneven growth and therefore should be given a lower valuation. This would allow us to snap up more shares at a lower price while the company performs -- WE would know the company is great, they wouldn't realize it until it got bigger down the road.

Institutional investors tend to use volatility in price as a proxy for risk. This is the wrong proxy in my opinion, but it creates great buying opportunities. If you're in this stock for the long haul -- and I would argue this company is a major keeper -- then this effect would allow us to get more shares at lower prices.

Since the company will continue to perform on the fundamentals (which are excellent and improving), the stock price would catch up anyway once institutions and the beta-proxy advocates realize that the long-term growth is excellent, regardless of the short term earnings and price volatility.

For the long-termers and the contrarians, I'd love to see the smoothing go away.
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