If you think I'm crazy for saying that ESPI will go to 40+, well you're probably right. However, the way the market values any company associated with the internet is even crazier.
You want proof, then think about why Covad (COVD), a CLEC that in 1998 generated a pitiful $5.3 million in revenues and posted a $48 million loss, today has a market cap of $3.9 BILLION. This company only recently went public and is light years away from turning cash flow positive. In fact, COVAD's strategy is highly flawed. Basically, what they do is co-locate DSL equipment at the LEC central office, lease copper loops, and then sell DSL service to end-users. It's a low margin, highly risky business strategy. But the market doesn't care because they are perceived as an INTENET company.
An even crazier story is Rhythms Netcom (RTHM). Similar to Covad, they are a DSL service provider using leased copper loops. In 1998 they had $528 THOUSAND in revenue (that's right, I said THOUSAND) and lost $36 MILLION. Any sane person wouldn't even consider investing in such a dog. But the market doesn't care because they are perceived as an INTERNET company. That's why this little gem of a company, who just went public a few days ago, has a market cap of $4.9 BILLION. Yes, I said BILLION.
There are other examples of just how nuts the situation has gotton. MCG Communications (MCGX) another DLS reseller, for example, generated revenues of $15 million, and posted a loss of $28 million in 1998, just recently experienced an incredible run up to a $800 million market cap. Because they're perceived as an INTERNET company.
Starting to get the message? Figure it out yet? If not, let me be very clear. IF THE MARKET PERCEIVES A COMPANY AS OPERATING IN THE INTERNET DOMAIN, THEN IT DOESN'T MATTER WHAT ITS REVENUES ARE. IT DOESN'T MATTER WHAT ITS LOSSES ARE. THE ONLY THING THAT MATTERS IS THAT'S ITS AN INTERNET RELATED COMPANY.
This week, for the first time, the market is starting to alter its perception of ESPI. To this point, the perception has been that ESPI is just another sleepy CLEC. But now the market is slowly starting to awaken to the fact that ESPI is as much a player in the INTERNET as Covad, MGC, or Rhythms. In fact, the market will eventually realize that ESPI is, in fact much better positioned that the other three, because ESPI owns its own fiber links, which means that it won't be at the mercy of the LECs.
And that's why ESPI is going to soon blow the doors off of 40.
Contributed from another thread..
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