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Technology Stocks : Vitesse Semiconductor
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To: Timothy Tashjian who wrote (441)2/9/1997 11:17:00 AM
From: Howard Bennett   of 4710
 
Tim & Will:

That is a good point. I do not know if VTSS is optionable...but if it is....he might just try buying Puts as opposed to shorting it -- to limit his downside risk to the cost of the Put option.

The answer I gave to Will was a Technical Analysis point of view (from my TA software).

What I omitted was a Fundamental Analysis point of view. After looking at Baseline Financial Services profile of VTSS....I'd suggest that VTSS is currently over-valued.

Note: VTSS trailing P/E is 62.5 (based on earnings in the last 12 months of .78). VTSS's P/E has been declining since 1994-1995 when it's explosive earnings growth was 172% to 250% year-over-year (hard to sustain.)

If Baseline's earnings growth figures (their source for earnings are from First Call) for FY 97 and FY 98 can be believed...then I believe VTSS is overvalued.

FY 97 1.18 per share -- up 87% year-over-year
FY 98 1.51 per share -- up 28% year-over-year

If FY 98 is only 28% growth then.....isn't their some downside to VTSS's recent runup -- maybe to down to the $42 or at least range bound 42 to 50?

The recent run up of VTSS (since July 1996 really) is likely due to "momentum" Mutual Funds paying attention to the stock. Once institutions buy VTSS and drive up the price....if VTSS's earnings growth slows from the past explosive rates...there will be a rapid decline in VTSS as those same institutions dump their position and move onto the next momentum play -- much like what is currently happening with 3Com (a going Networking concern) -- down almost 40% in value.
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