Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: que seria who wrote (25082)	5/21/2000 12:04:00 AM
From: Jacob Snyder	Read Replies (1) \| Respond to of 54805

NTAP comments: 1. They are in a real business, unlike many internet-related companies. DLJ thinks the NAS market will grow at a CAGR of 70% a year. I think that's a reasonable, conservative guess. To paraphrase a bad commercial, "having too much memory is like having too much bandwidth, or too much cash flow". Every few months, a big new use for memory on a network will be found, and this process will continue for many years. 2. They have a track record. Their business has been targeted by some big companies, and NTAP has successfully defended their turf. This gives me some confidence that they will not be another one in the long list of "first movers" who got crushed once a big tech company targeted their high-margin rapidly growing space. Still, potential competitors are a constant threat. If I bought NTAP, I'd need to follow it very closely, and sell (no matter what else the company was doing right) if their market share (now at 60%) started dropping. 3. Hard to imagine their products becoming a commodity, so margins ought to be high. 4. Profit growth: not unreasonable to see sales and EPS doubling for the next several years. For calendar year 1999, they made 0.15. 2000: 0.30; 2001: 0.60; 2002: 1.20. I always use calendar years, so its apples to apples when I look at different companies. 5. they have the cash and cash flow needed to continue growing the company, without going into debt (like AMZN did). I am slightly worried about shareholder dilution, however. Total diluted shares 4/99: 324M; 4/00: 359M. Last stock offering: 3/99. I like to buy stock after a company has finished diluting them, and when they have the excess profits needed to buy back any shares they give out in employee options. 6. Valuation and volatility: the stock was at 17 in 10/99, 124 in 3/00, 41 in 4/00, now at 65. As best as I can tell, having reviewed several analyst reports and many news stories over that time period, the outlook for the company didn't change much over the last 6 months. It was, and is, excellent. I conclude that the stock price is controlled by a lot of momentum money surging in and out of the stock. Those "investors" (who decide whether the stock is at 17 or 124) probably have only a vague idea about what the company does. "It's a net stock; they make some gismo that everyone is going to need a dozen of; buy it, it's going up". That, I think, is the extent of the due diligence done by a lot of NTAP stockholders. 7. As long as there are so many "weak hands" owning NTAP, (that is, as long as it is a hot stock in a hot sector, and everyone knows that tech stocks only go up), there will be a huge risk in the stock. And that will be true no matter what the fundamentals. 8. If I wait for the stock to go out of favor, and stay out of favor for long enough to shake out all the weak hands, I'll probably wait forever. 9. I'm considering the following investing strategy for NTAP: buy, in increments, whenever the stock is below 50. Don't let it get over 10% of my portfolio. Once I have my position, follow the company closely, but don't look at the stock price. As long as the company looks good, hold. At the first sign of a successful competitor, or slackening top or bottom line growth, or the emergence of an alternative technology, sell, no matter what the stock price.