Howard,
When I was in high school, my grandmother made draperies at an exclusive furniture store, the largest and best in town. Jack was the only other employee in the shop. He reupholstered furniture. On the weekends I helped grandma. The store had this deal with Jack: He could reupholster one sofa, display it in the store, and sell it for himself (of course it was identified as being reupholstered). Jack was frustrated. He "invested" a lot of time creating a beautiful sofa, but after many months it still didn't sell. My grandma may have made draperies for a living, but she wasn't stupid, she said, "Jack, you haven't sold your sofa because it's priced too low." Jack tripled the price, and Jack's sofa became the most expensive sofa in the store. Sure enough, it sold in just a few days.
Your comment: "2. What about the recent news of warrant expiration?
- gives the company five million dollars in cash, which can be used to increase sales.
- Dilutes existing shareholder stake in company about seven percent. This is roughly equal to a fall in company stock from $5.25 to $4.88. This is exactly the decline we have seen the past week. So, I'm assuming it is already written into the price and is no longer a negative."
Your seven percent decline in company stock value is true if Quidel doesn't produce any revenue from the 5 million; however, I'm quite sure Quidel will put the cash to good use. If Quidel earned 6 percent interest on $5M for its 3Q and included the additional 1,692,087 shares in its earnings report, then its third quarter earnings would have been:
$1,805,000 (A3Q Net Income) + (($5M X 0.06) / 4) = $1,880,000
$1,880,000 / 24,066,000 shares = $0.078 per share
compared to its actual:
$1,805,000 / 22,374,000 shares = $0.081 per share
a dilution of only $0.003 per share.
Quidel's a $10 stock based on earnings, not hype, hope, prayers, or speculation. Peter Lynch says, "Ultimately earnings, earnings, earnings will determine a stocks price." Well, Quidel's got the products, FDA approvals, distributors, and now earnings. Its price will soon more fairly reflect its earnings. And after Quidel doubles or triples, it'll double again, because that's when the customers will want to buy it, just like the sofa.
I'll repeat (post #365) the reason why I think Quidel's near term fair value is $10:
Van Kasper estimates Quidel's 4Q sales will increase 0.7% over 3Q sales, and Principal estimates an 8.7% increase. Considering Van Kasper's estimate, the lower of the two, then Quidel's 4Q earnings should be at least $0.08, the same as its 3Q. This would give Quidel a $0.20 FY97 EPS.
Van Kasper estimated its $6 near term fair value for Quidel by multiplying a 30 P/E times its (Van Kasper's) estimated FY 98 earnings of $0.20 per share; however, it looks like Quidel may come through with $0.20 in FY 97. Van Kasper estimated FY 98 earnings growth at 67%. If we apply the same estimate to a FY 97 $0.20 EPS, then FY 98's EPS will be $0.33. Multiply this by a 30 P/E, and we end up with a $10 near term fair value for Quidel.
Mike |
