The 4/08/99 First Call summary of analysts reports, made after the bad news came out, is "Buy/Hold" with a projection of 1999 profits of $1.11, against $.98 for 1998 and predicted $1.85 for year 2000.
What went wrong? I can only give my opinion, but it is based on having twenty years in the the management of successful industrial software firms similar to EAI.
In my opinion this is a very strong company that has stumbled just recently, but does not repeat its mistakes and will quickly resume fast growth.
For some months EAI has been under short-selling pressure because their accounting methods were considered aggressive, and because they were slow in collecting accounts receivable.
They voluntarily revised their accounting to more conservative methods, and their collection of accounts receivable have greatly improved. So these problems are are out of the way.
Based on their very strong position in their fast-expanding software
market, great progress was expected for the current quarter's earnings and the stock was holding in the forties.
When the CEO announced last week that several major orders expected for the current quarter did not close on time, and EAI's quarterly earnings would thereby be hurt, the stock dived. Wall Street treats all earnings disappointment very roughly and has done so recently even to such great companies as Gillette and Coca Cola.
In my opinion EAI's sales have been growing faster than their administration was organized to handle them, and they failed to follow-up properly to close some key orders on time. I don't expect this problem to continue, and I believe that EAI will resume strong growth.
EAI has not been losing customers, it has been gaining customers. How much better can you do than Ford, GM, Toyota, Volvo, Lockheed, John Deere, etc., etc?
Their competition is far behind them. EAI says that competition has not been taking business from them, and I believe this to be true.
Their product line is growing and the size of their market is growing.
They are loaded with cash. As of December 31, 1998 they had over $35,000,000 in cash and short-term investments.
As Warren Buffett says, "In the short term Wall Street is a voting machine; in the long term it is a weighing machine." In my belief EAI continues to be a first rate long term investment. When the stock market will reflect this again is anyone's guess.
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