RE: Potential stocks. I made a couple references to PERLF, a small cap networking/comm board company. I did co-DD with an excellent analyst last year on this one. Rainier covered the FA &TA, I did the business case. Here's a link to his major report, plus a recent followup
Message 3289288
plus a recent followup
Message 7436979
some of their technology.
biz.yahoo.com
PTIX and EQNX are my other small cap networking stocks.
Profiles and research
biz.yahoo.com
biz.yahoo.com
PTIX got hammered last summer when the next phase of a contract was delayed plus the general small cap selloff. The stock has rallied strongly in January, looks like the market is expecting a good report, as I sure am. They did get the follow on contract, and since then Lockhead gave them a prefered vendor status. They are exhibiting at a comm. tradeshow next week. My gut is that they will use this forum to announce a high-end fault tollerant comm board.
biz.yahoo.com
biz.yahoo.com
EQNX was overly hammered last summer after a badly handled EPS warning, followed by the small cap selloff.
They have strong products with respect among industry pros. They also have an excellent cost structure (Debt free and own their own fully paid for hqtrs. (They're also exhibiting at the ComNet show, and like PTIX have some very good FA #s.)
biz.yahoo.com
biz.yahoo.com
They're partnered with IBM in the largest POS (Point of Sale) contract every (US Post office) A MSFT partner in fault tollerant Win NT networks.
Here's a write-up I did last year for SI as a guest analyst. It's obviously dated, but should give you a decent feel for the company.
"Summary: Equinox (NASDAQ EQNX) is a semi-undiscovered computer networking
company that has quietly built a business that has outperformed the NASDAQ and S&P 500
in terms of EPS growth and price appreciation, while trading at lower trailing and projected PE
multiples. In the process they have put together an outstanding balance sheet and cost
structure. Their product releases this year demonstrate both the effectiveness of Equinox in
positioning their products to compete in emerging industry niches where they have expertise,
and the ability of their R&D groups to make the vision a reality.
Price Appreciation, EPS growth and Balance sheet ratios: Equinox has soared from 9 ½ to 26
5/6 in the past year on 74% EPS growth, on the heals of a 59% increase the previous year. It
trades at a trailing PE of 22, with forward PEs of 19.9 and 16.2 for fiscal years 98 and 99
respectively. Looking at balance sheet rations reveals a very solid and steadily improving
financial position. (See
wsrn.com
Current ratio = 4.84
Profit Margin = 14.7
Return on Equity = 17.7
Return on Asset = 14.5
Price/Sales = 3.08
Price/Book = 3.72
Price/Cash Flow = 18.1
Debt/Equity = 0.00
While EQNX no longer qualifies as a pure value play, the solid value characteristics provide
supplies a firm foundation for the excellent growth. Cash and marketable securities stand at
16.3 million, which is substantial considering it is over 2x sales for the last two qtrs.
Management expects that cash reserves and income from operations will be sufficient for
expansion and do not anticipate a need for additional debt or equity financing. Their sizable
cash balance allowed Equinox to repurchase shares during 1997 when the stock was
significantly undervalued.
Cost Control and Margins: Equinox has taken great steps in controlling costs, which is evident
from reading their annual report. It is entirely black and white - solid numbers and pertinent
information with no color photos. CEOs compensation is illustrative. For the past three years:
Year Salary Bonus Options
1997 $ 201,781 $ 198,000 65,000
1996 198,290 127,000 110,000
1995 179,429 172,000 90,000
This is quite modest compared to the millions many CEO make, and is clearly tied to
performance. 1996 was on off but still profitable year, resulting in a small increase in salary,
reduced bonus and fewer options granted the next year. They own their headquarters debt
free. My recent discussion with management revealed that they have adequate space for
current and anticipated staff needs, and own adjacent property for expansion if needed long
term. Most manufacturing is outsourced, reducing their overhead. Accounts receivable
turnaround has been reduced, and from 1996 to 1997, inventory and accounts receivable
decreased. From 1993 through 1997, cost of sales and operating expenses grew 33% while
net sales grew 53% The favorable cost structure of Equinox and improving margins enable
them to produce a 74% EPS increase on 14 % revenue growth in 1997.
Product Strength and Development: Equinox produces I have been in information systems for
20 years, most of it working with distributed systems such as mini-computers and PC
networks, and have taken several Novell CNE courses. This gives me an appreciation for their
products. Equinox communication boards are designed to off-load tasks such as
telecommunication protocol and interrupt handling from the CPU, thus freeing the server up for
more important things such as database searches and number crunching. Their products are
compatible with most current operating systems, thus appealing to a fairly broad market.
Equinox products are coupled with effective network monitoring and management software,
making and their boards easy to configure and support. I recently attended a technical
education course at SMS covering their new Windows NT based integration engine. I learned
SMS chose Equinox as the serial port controller. I commented favorable on the choice, and
immediately another networking professional added "they make better boards than Digi",
seconded by another student who added "and they're less expensive too."
From 9/97 to 3/98 Equinox announced a series of significant product developments.
Unfortunately, since most potential investors do not understand the technical issues, the market
yawned.
PRN 09/02/97 Equinox Releases EquiView Plus Version 2 with SNMP Remote
PRN 09/30/97 Equinox to unveil Fault-Tolerant I/O for Microsoft Windows NT
PRN 02/26/98 Equinox Becomes a Member of IBM's ServerProven(TM) Program
BSW 03/09/98 Another Minxware customer selects Point Man; Point.Man's functional
strength in engineering and after-market support key to Equinox win
But in the two months since the Post Office/IBM sale was released, the stock has soared.
PRN 03/10/98 IBM Selects Equinox For Major U.S. Postal Service Project
PRN 04/30/98 Equinox Teams with IBM and Microsoft Server Clustering Products
RTR 05/07/98 Equinox Systems sets three-for-two stock split
Another significant item buried in the annual report is that the CFO of Citrix has been
nominated to serve on the Equinox board. Citrix is the leading producer of "thin client" systems
software. This key technology greatly reduces network traffic, thus improving performance.
This rapidly growing company and technology is well positioned with industry leaders such as
Microsoft. This bodes well for the future of Equinox.
Comparisons. Despite a nearly 174% increase in the past year, EQNX is still undervalued
compared to most of the entire Computer networking sector. I just completed a detailed
review of nine companies in the sector, most of which were larger, "known" companies -
ANET, ASND, BAY, COMS, CSCO, DGII, EQNX, FORE, and PTIX. I reviewed balance
sheet ratios, historic and projected growth, trailing and projected PE, and analyst rankings.
While I do not have time to post the complete results, the picture that emerges is quite clear.
The three top companies also had three of the four lowest market capitalizations and the fewest
analysts following them (PTIX, EQNX and DGII, Equinox's chief competitor.) Like EQNX,
CSCO has strong, consistent EPS growth, and is comparable in terms of ROA, ROE and
Profit Margin. But CSCO has a much worse historical and future PEG ratio, and has been
awarded Price/Cash flow, sales and book, and FY99 PE multiples 2-4 times as high as
EQNX. EQNX trades at about the same price as DGII, has profoundly better ROA, ROE
and profit margins, yet has only 27% the trailing PE. BAY, ASND COMS and ANET have
produced many negative or negligible qtrs the last two years. To summarize the valuation
review, while EQNX soared over the past year, it is still far more attractively valued than most
of the segment. With all the above elements in place, I believe Equinox is in a strong position to
continue delivering strong growth from a well laid foundation. The share appreciation should
continue to follow.
Current Picture: Zacks has just upped its ranking to a strong buy, and has it 11th out of 60 in
the Computer Networking sector. Individual Investors' SSR also is plugging EQNX. FY97
EPS was 1.08, and Zacks shows a consensus estimate of 1.34 and 1.64 for FY98 and 99.
While estimates were increased twice recently, in my opinion they are still below probable
results. I anticipate at least 1.50 for FY98 based both on past trends, product and contract
announcements. Technically, the 20 and 50 day moving averages crossed the 200 day last
May and remained above since. Please consult the annual report and 10 K for additional
information.
end of report
Note: The networking companies in the comp were chosen mostly due to name recognition
and articles about them (ASND, COMS, CSCO, ANET, BAY) FORE due to recent Buys
from DLJ and BA Rob. Step. DGII since they are the closest competitor, and PTIX due to
comparable size and the fact that I follow them. None were selected from a larger list to
orchestrate a point."
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