Tom, good analysis. You've hit on the main reasons why I have been ambivalent on CRNR until recently (as has the rest of the street). I now think the stock is a buy in the 7s for the following reasons:
1) Cornerstone is reinventing itself as a software company with InputAccel and other Pixel Translations product lines. This means much higher margins and a much more defensible market position. The software transition has been slower than anticipated, in my opinion because selling software is nothing like selling monitors. They are getting the hang of it, though.
2) CRNR is transitioning the "cash cow" display product line from high price, low volume document imaging applications to lower price high volume mass market applications. This is risky, but I believe it will be successful because they have a great reputation for quality.
3) Management expects that the street will soon begin to value CRNR stock accordingly. Everyone I've talked to over there (and that's just about everyone) is loaded to the gills with their own stock. Of course, they all bought a year ago, so they aren't exactly happy campers right now.
4) They are extremely smart marketers. They've been selling monitors (or "Imaging Displays" in Cornerspeak) the way American Express sells charge cards - at a huge premium. I know an ex-executive at a major competitor who was flabbergasted by CRNR's ability to command outrageous prices for their products. It's not because they're dumb.
5) The stock is extremely cheap. As usual, the street has overreacted. Given the clear trading range for the stock over the past year, I see little downside risk and a strong upside potential. Just a retracement to the upper end of the range at 10 would be a 27% gain, or 33% if you get in at 7 1/2. I can live with that.
6) I see the strong possibility that we break the 10 ceiling on the next upswing. If that happens, this will be a $15 stock real quick, for a 100% gain. The P/E at 15 (assuming 60 cents) is 25, not an outrageous number. Look at Sigma Designs - half the revenue, nothing exciting, and a PE of 60. Or Diamond, at a PE of 30. Certainly the street is willing to reward consistent earnings growth.
7) I see Zacks is still calling for 6 cents next quarter. Bah. Watch them blow that away.
I have not yet put my money where my mouth is, primarily because the stock is trending down much quicker than I anticipated, and I never buy on the way down. Just keeping the crosshairs on the target and the finger on the trigger... We'll bag this one real nice.
And all you CRNR lurkers, I know you're out there. Quit watchin' and start participatin'. Log in and tell us why both of us are wrong.
Cheers. |
