Good Questions, Richard.
>>The P/E is now around 20. Why do you think that a P/E of 20 is reasonable for a stock that last quarter had earnings growth of more than 500% (.09 per share to .46 per share) and revenue growth of almost 300% (I think it was $12 million to $31 million)?
The revenue for the last twelve months was $81 million. Compare that figure to some other companies you like and you get a feel for how small RSYS is. In the early years, you get these high percentages, then things start to level off. That could be part of the problem if RSYS is thought to be making the transition from hypergrowth to growth.
A real important issue here is the quality of earnings. Earnings can be and are often manipulated. It's notable that the lawsuit involves an employee who claims he was fired and has something to do with the IPO overstating inventories for the back in 10/95.
There are many ways to manipulate earnings. I'll list a few: bogus assets (securities not marked to market, real estate at inflated values, inventories of obsolete products, receivables with loss provisions too low; and bad loans); nonrecurring revenues (sale of equipment, land and real estate; sale of securities; interest on securities or cash equivalents; tax credits; and changes in accounting methods). Professional shorters look for what's not explained in the Qs and Ks like fuzzy liabilities, unclear disclosures.
I'm not saying that RSYS has anything questionable in it's balance sheet. In fact, I too, like what I see on the surface. But I'm only looking at summary reports. You need to read the Qs and Ks, especially the footnotes. If if were down by a significant amount of money in this stock, I'd start reading all the Qs and Ks from the SEC Edgar database. Frankly, I want some of you out there that are more motivated to do so to do the tedious work for me/us... and see what you find so we can discuss it here.
>>Insider selling is significant. Tektronix sold 240,000 shares in December. The number of insider sells, not option related, appear to be increasing. Could you please provide specifics. Also, why do you consider sales by Tektronix to be "insider selling"?
Insiders are defined by the SEC. Tektronics Development Company may be the largest shareholder. I'm not sure when this type of information gets updated, but I know it's not very often. My report shows Tektronix Development Co. as the largest shareholder at 25%. I think they may have started the company, but I'm not sure if they just provided the venture capital or are more involved in running the company... You may want to check out the information on ownership at the following site: stocksmart.com
I get Telescan with my brokerage account and it charts insider transaction. All I'm saying is that the sells minus the purchases are increasing. This is not weighted by the size of the trade. It just counts the number of trades reported to the SEC. When I pull the graph, I like to exclude option related buys and sells. I also get Vickers Insider Trading Reports, which list all the insider activities. For example, Scott Gibson. a Director, bought 4,546 RSYS by exercising an option at a price of 8.91, then sold the stock at $54 on 11/20/96. There's a good site for insider transaction that free on the net: insidertrader.com Go to the Insider Trading Summaries.
One last thing and I gotta go. The number of outstanding shares went from 4,355,000 to 7,362,000 in the 12 months ending 12/31/96. What do you think that does to the value of the stock? They're authorized to go to 14 million. Nothing bad about that, just something to think about.
Alex |
