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Technology Stocks : Vari-L (VARL) -- Ignore unavailable to you. Want to Upgrade?

To: J Stone who wrote (1306)	11/4/1999 12:38:00 AM
From: Pi	Read Replies (2) \| Respond to of 2702

"Given VARL's current P/E is south of 20 at a price of 11, there's very limited risk." I disagree. My problem with VARL has nothing to do with earnings growth, earnings projections, or the strength of the industry. My concerns with VARL are: dilution which has occurred over the past 3 years, exposure, and volatility. Since Jan '95, VARL has been growing in terms of revenue. With the exception of a downgrade in '97, where there was a delay in the release of a Chinese product, VARL has been adding to revenue and profits for 3 years. However, in that time, VARL has also added an additional 30% to the number of shares outstanding. So as profits grew, so did the number of shares, thus creating an earnings / share value that was steady or even decreasing. I fear this could continue as VARL continues to issue additional shares under their employee stock option plan. Don't get me wrong - I think the option plan is a fantastic motivation tool. It's just that VARL has been, in the past few years, issuing too many shares vs. it's revenue growth, creating a situation of a company that is spinning it's wheels. VARL is a micro-micro cap. Though in the past couple of months it has continued to get much better exposure, it's still not saying much to have a single analyst following and recommending your stock. Many small-caps have several analysts at the least - VARL is not getting the word out to the investing community. Nor do I think they're trying - that's fine, they're concentrating on the business. But it doesn't maximize my value if they aren't trying to pull in additional investors. Though VARL has a float of 3.9 million shares, one hundred thousand changing hands could have a 10% impact on the share price. Talk about some volatility! To some, this might not be a problem, they can wade through the huge fluxuations. To me, it makes me nervous - is this another fluxuation, or a slow dissemination of good or bad news to which I will be late to react? It makes me wary. So, I think VARL has the possibility of being a stock anywhere from the 8 dollar range to the 20 dollar range. If the stock dilution continues, and they fail to get additional investors or better coverage, VARL may fall 20 or 30%. In fact, in the past 3 months we've seen VARL as low as 8 3/4. Thus from here, the downside risk it potentially as much as 30%. To the upside, VARL appears poised to break out of it's current range (but this isn't the first time). It is suddenly growing more quickly, there hasn't been much dilution lately, and our analyst is starting to pound the table every now and then. The upside could be as high as $20, or 85%! Is a 30% loss worth a potential 85% gain? That's a tough one. My answer is no, there are safer bets. But if we see VARL drop into the 9 to 9 1/2 range then suddenly the question becomes, is a 10% loss worth a potential 110% gain? For me, when we reach that point, the answer becomes yes.