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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Sunny who wrote (4531)	8/2/1999 12:32:00 PM
From: DownSouth	Read Replies (1) \| Respond to of 54805

Sunny, pardon my thick head, but how is the 44% eps growth derived?

To: Sunny who wrote (4531)	8/2/1999 1:00:00 PM
From: DownSouth	Read Replies (1) \| Respond to of 54805

According to Multex: "Network Appliance's profits will increase 54.3% in 2000 and 39.4% in 2001...At this time, analysts expect earnings of $.71 per share in 2000 and $.99 in 2001...Earnings of S&P 500 are expected to rise approximately 9.13% in 2000. Currently, industry analysts are projecting first quarter profits for NTAP to be $.14 per share. The current estimate shows no change from the prior month. It still indicates that analysts believe earnings will rise over $.10 per share recorded in the prior year earlier quarter by 40.00%. Wall Street's confidence in the earnings forecast is very high. The deviation in the estimates that form the consensus is very low and any significant variation from expected results could have very adverse price consequences for the shares."

To: Sunny who wrote (4531)	8/2/1999 3:53:00 PM
From: DownSouth	Respond to of 54805

Sunny, now that we have compared some eps forecasts, to get to your original question--why the exuberance with a PE of 118? NTAP is a solid performer. With a business philosophy like CSCO's, NTAP has maintained its gross margin (60%) and growth rate (>70%) for a few years, with no disappointments. Their marketplace (Network Attached Storage (NAS)) is growing very rapidly and they have a 40% share. Their nearest rivals all fall into the 10-15% share range. So they are a steady performer, maintaining a nearly dominant position in a potentially explosive market. Thus their PE is not as risky as it may first appear. I subscribe to the notion that NTAP is in a tornado and will emerge the Gorilla of NAS. They have created barriers to entry by setting a standard for price/performance based on their proprietary software running on industry standard hardware components, assembled by them. Now they have a deal with Dell where Dell is packaging the proprietary parts from NTAP (software and motherboard) and branding the subsystem as "Dell PowerVault". This creates a new channel of distribution into the NT server space for sales of $15K-$100K. This avoids the high cost of NTAP direct sales into this market. It also is good for NTAP's margins, because Dell will be providing 60%+ margins to NTAP because all they are buying from NTAP are their highest margin components. (DELL is not buying disk drives, controllers, etc from NTAP, which have very low margins.) So not only is NTAP a strong steady performer, but it is testing a new channel strategy into a rapidly growing market segment (NT). NTAP is thus able to sell down market without sacrificing margin, threatening its direct sales force, or diluting its marketing efforts.