OK, Mike, I'll try to make you feel better about Covad.
First, a little disclaimer. Hard as it may be to believe, I haven't followed what Covad is doing at a good level of detail, although I am familiar with who they are and what they do. Inspiration you won't get from me today, an opinion will have to suffice.
There are several danger signals regarding an investment like this. Although many of the "old rules" don't apply to Internet investments, I try to avoid real companies that have negative EPS and Covad is a whopping $-3.02 per share. Then, it is very new, with no track record to speak of. I believe COVD will be very volatile in the near term and I view it as similar to companies like @Home. Massive infrastructure builds requiring huge capital up front. Only 4 major markets now, although they are big ones in Boston, LA, NY and SF. Just saw where they opened Sacramento and have plans for 18 more . It's extremely expensive to operate in the cities they are in, but typically good margins, lots of cream to skim.
However, I believe that the recent FCC ruling on co-location will give companies like COVD a boost and help them in their quest to build competitive networks and offer alternative high speed access. I also think they are smart to restrict their highest speeds to 1.5 Mb/s even though the equipment will support much faster speeds.
They are down $4.25 today or 6.4% to $62 1/4. They have good backing from Warburg Pincus and Intel. They will probably be in negative EPS territory for a few years as they build out, and WS can turn on you if the overall market has a problem. If you believe Intel is an evil, inferior outfit, then Covad probably is too. But nothing I've seen indicates they are in a pact with the nether region.
To summarize, your initial feeling that $40's for a company like this is too much was well founded. But as is the fad of the day, all bets are off regarding Internet related companies. That kind of money for a company earning $-3.02 per share is hard to justify. And the bleeding will probably continue for some time. To make you feel better, I probably would have passed too. Just chalk it up to Internet mania, and if you've been watching, most of those crazies have been coming back to earth as of late. My personal feeling is that you may be able to get COVD in the 40s again soon and you can buy it then if you really want it. Past their initial success (which tends to bolster higher stock prices) in the major cities, as they tend to move to second and third tier cities the expenses will go up, the return and margin down. Just the way these types of specialized network companies tend to work in the real world.
Don't fret, you may get your dream date yet. All of this, of course, JMHO.
|
