Hello Hans-Erik,
<< Don't take offense, but not too long ago you felt RATL was 'high valued' on fundamentals >>
I really don't (take offense), do not worry :-) but nevertheless I do think that RATL is highly valued for presently "known" fundamentals. But this of course could be said of MSFT, CSCO, EMC, DELL and all the other good tech and pharma stocks also. A bright future has a certain price...
The reason I'm willing to hold on to RATL is that IMO the high valuation is merited by the business outlook. Of course this makes RATL rather vulnerable in case that either the OO-tools market does not develop as envisaged or RATL fumbles the ball (again).
My bullishness on RATL is grounded in the following:
- Management credibility and commitment;
- Market projections for OO-tools;
- Integrated product offerings for all kind of purposes/applications;
- Getting synergies out of recent M&A's (e.g. PureAtria);
- Real demand from high calibre Fortune-500 customers;
In addition, RATL has solid financials (practically debt-free), only few fixed assets, so the financial risk (deafult) need not be considered.
The main risks I see in RATL are (in no particular order):
- Product competition;
- Relatively small size company (only about $500m in annual revenues);
- Margins erosion;
- Management execution;
- Bad strategic decisions.
Management rightfully took much heat about 16 months ago when they badly missed their numbers and in addition handled the disclosure of it badly as well. But they were positive looking forward. Today, this positive outlook has indeed manifested and the outlook is still positive, if not even better because of additional perceived potential in e-commerce related software, "new economy" talk that must be software-enabled, etc. To the best of my knowledge IDC et al. have not reduced previous optimistic projections for the OO-tools market, so this is still en route to become a $5 bn market by 2002 (if memory serves). Assuming RATL having a major share of that (just guessing: 50%), the growth story is very much intact over the next few years.
In a world where you don't have inflation and usually no pricing power anymore, such growth is valuable, therefore a high valuation on RATL is warranted.
Overall, RATL is a situation of great potential, with the market currents playing into RATL hands, but they still need to execute well and watch over their shoulders constantly and must not fall behind. At this time, I'm going along with what management is saying ("Business is great") and what industry sources like yourself are telling me: They have the products, they are working (hard) on improving their sales force and product support, and customers/users have increased demand for OO-software.
While RATL will never become mainstream like MSFT of course, Levy and co. are well advised to emulate some of the MSFT culture, like constantly feeling haunted by the competition, etc. I'm also speculating that Gates is kind of a "role model" for Levy. They have a pretty good business relationship (Isn't there a Rose "Lite" version in one of MSFT Visual ______ product?). Levy also testifying for the MSFT defense in the anti-trust case... I can imagine Levy trying to learn the one or other trick from Bill on how to run a software company... probably doesn't hurt.
I'm not too concerned about the intended insider sales as well.
As much as I like RATL for all of the above, quite like you I suppose, I will still follow it closely and would sell if either they fumble or my assessment changes. So far, I don't see any of that.
Does this help? Greetings,
Thomas |
