From Dan Dorfman's column 5/17/99 re:CMNT
When a stock rockets more than six-fold from a year's low of $3.50 to a 52-week high of $22.375 and the company sells at nearly 40 times earnings, money manager and value investor Robert Olstein will often take a hard look at the shares as a potential short sale.
Not so in the case of Computer Network Technology (CMNT), the hot Nasdaq number that has posted this meteoric rise. Olstein, in fact, is wildly bullish on the company, having bought 259,000 shares over the past five weeks at an average price of about $18.
The company, which sells at 19 11/16, manufactures and markets a variety of hardware and software products for storage area networks. It earned $0.25 last year on revenues of $133 million. Its major customers are IBM, EMC and Hitachi. Olstein sees revenues streaking to $1 billion within five years. The company, said to be well managed, also has $12 million in cash and no major debt.
"An outstanding network and Internet play—a junior Cisco Systems that's in the early phase of its growth cycle" is how Olstein views the company. Storage of data is the big play in the buildup of the Internet and Computer Network Technology will be a major beneficiary of this buildup, he says.
His earnings outlook for the company—snazzy average growth of 50% a year over the next five years, with per-share earnings this year ballooning to 50 cents or better and zooming again to 80 cents or more next year.
"Long term, this stock is a three-bagger," Olstein says. His target price a year out: $35 to $40.
Still, what's a value investor doing with such a high-multiple stock? "There's also value in growth and this company's growth is greatly undervalued," Olstein insists. "This is not one of those insane cases where you buy a ‘dot.com' stock at 400 times earnings."
Given his record, Olstein's stock views deserve special attention. His fund, which kicked off operations in December 1995, is up an impressive 135%, Olstein tells me. Its 1999 showing: up about 23%. Incidentally, one of Olstein's big fans is the globe-trotting investment whiz George Soros, who owns 10% of the Olstein Alert Fund.
Though gung-ho on Computer Network Technology, Olstein does flash some warning signs. "This is a highly competitive arena and other technology could always knock them off." But for now, he adds, "This number has all the earmarks of a huge winner."
Meanwhile, the company announced today that Thomas Hudson, CEO and president, will assume the role of chairman, succeeding John Rollwagen, who will remain on the board.
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