Andrew and James
Thank you for your supportive posts.
One additional question I wanted to discuss was how much worse could it get for CSCC's stock price if the product cycle transition doesn't go well and we get an earnings failure like Shiva's in late April. On Saturday, I mentioned how Shiva's price had declined over the last six months. Here are the numbers.
Shiva announced third quarter 1996 results after the close on October 17, 1996. This was the report that showed the increase in DSOs. The stock closed at about $47/sh the following day. Given its current price of $14/ share, Shiva has lost over 70% of its market value since that announcement.
CSCC announced third quarter results on October 10, 1996. The stock closed at about $75/ share on the following day. Given CSCC's current price, it has lost 65% of its market value since that time. Now, if CSCC had lost as much in percentage terms as Shiva, it would be trading at about $22.38 today.
Now consider that Shiva had an earnings failure in the December quarter and CSCC did not. Also consider that CSCC is a market leader and (I think) Shiva is not. So given CSCC's decline, the market seems to have built in the likelihood of an earnings failure come April. So if they make the $0.23/sh, we will probably get a nice bounce into the mid or upper $30s. But nobody knows how fast frame relay is dropping or how rapidly ATM is gaining. Nor does anyone know how the margins on these products are holding up.
Now, CSCC does have an earnings buffer they could use. I mentioned that CSCC spends about 50% more per dollar of sales on R&D than the other comparative companies I used in my earlier post. It is spending twice as much per dollar of sales as ASND. According to my error ridden calculations, they are at 15% of sales. So, even if things aren't great this quarter, they may have the flexibility to make estimated numbers if they cut back on R&D at the first sign of trouble. We should all check this as soon as earnings are posted because this plus the DSO will indicate the quality of their first quarter 1997 earnings.
An earlier contributor said that the stock may rise into the April earnings report and that that may be a good time to sell. That's probably good advice. Even though the down side may be only 4 or 5 points from here, if we move up to $33/sh prior to the report, going back to $22 is pretty ugly.
It's a tough call but long-term, I think CSCC with all its R&D spending will do very well. It's just the short term that scares me.
Regards
David |
