Re: 8/29/00 - [EMLX] Internet: Lessons to Learn from Emulex
Tuesday August 29, 11:30 am Eastern Time
individualinvestor.com
Internet: Lessons to Learn from Emulex
Senior research analyst: Luciano Siracusano (08/29/00)
In the aftermath of the Emulex (NASDAQ: EMLX - news) hoax last Friday, investors and financial journalists have spent a weekend naval-gazing, trying to understand the exact chain of events that left them the victims of a painful and costly hoax.
The rest of us - those who had no financial interest in Emulex and who did not hastily republish the false information - can also uncover a few lessons from the ruins of the wreckage.
First, know your source.
Although several message boards were quick to alert vigilant investors that there was ``news coming'' before the major financial press reported Emulex's alleged problems, several major newswires did not carry the release, nor did the company's own website.
This should have raised some questions, as should have the wording of the release itself, which in effect said, ``There would be more details after the market closes.''
Would a California-based company issue such a market moving trifecta - restated earnings, a CEO resignation, and an SEC investigation - at 9:30 a.m., just as the market opened?
Sure, if management wanted to cause the utmost chaos for its stock. Save that, of course not. It made no sense to put out such news when few, if any, employees were in the corporate offices to respond to press inquiries.
Such damaging news is almost always handled in some type of conference call so that management can deal with the full scope of questions that arise from disclosures.
One of the ways to insulate yourself from being victimized from future hoaxes is to become familiar with how companies disseminate their market-moving information. If you are watching your stock closely enough to trade it at the first flurry of negative message board comments, then you should take the time to bookmark its corporate website and jot down the phone number of its Investor Relations' office.
Second, move up your trailing stop limit orders when a stock moves higher.
Clearly, some of the selling was triggered by stop limit orders that investors had placed to protect themselves from an avalanche of selling. In the case of Emulex, which has as volatile a trading history as any stock around today, such stops can protect you in the event the dominoes start to fall.
However, there was no reason to be stopped out of the stock in the $80's, $70s, or $60s. Move your trailing stop limit orders up as your stock goes higher, so that you are not forced to sell after the equity has already lost more than 15% of its value.
Third, reconcile yourself to the fact that Internet content is being monitored with greater sophistication.
Lawsuits are cropping up across the land, forcing otherwise anonymous posters to identify themselves and face the consequences for defamation and stock fraud. If those who participated in this latest hoax were posting on message boards to help incite the panic selling, they probably left digital fingerprints that the SEC and the FBI will use to track them down.
Combined with the SEC's ability to monitor stock and option trades - and there was a boatload of Emulex put option contracts being bought up late last week - there is a good chance the perpetrators will be identified, apprehended and prosecuted. That's important, for sure and swift enforcement is the best means of deterring future crimes.
So although the Internet should be a place where people can voice different opinions without fear of retribution, be careful that your messages do not cross any civil or criminal lines. Posting defamatory statements that impugn the reputation of corporate executives or posting fraudulent information that drives down the value of a company's stock can lead to fines or imprisonment.
The truth is, the advent of message boards and their effect on low-float stocks, particularly NASDAQ listed stocks, is creating a new cottage industry for companies that can help corporations keep track of what it being said about them in cyberspace.
NetCurrents
I suspect one of the by-products of the Emulex hoax will be new investor interest in companies that specialize in ``Internet intelligence'' like content-monitoring concern NetCurrents Inc. (NASDAQ: NTCS - news) .
NetCurrents analyzes communications from more than 50,000 targeted Internet locations in real-time. The company's software monitors what is being said about companies online. NetCurrent's personnel counsels corporations about how to protect their image, measure consumer's perceptions and counter misinformation on the Internet.
Its Agency Facts product, which instantaneously determines what the online community is saying about a company in real time, also evaluates online ``sentiment.''
In August, the company signed a letter of intent to enter into a strategic alliance with Kroll Associates to target the investigations, intelligence and securities markets.
The current quarter, ending September 30, will be a telling one for NetCurrents. The company expects the rate of growth for its new line of products and services to accelerate in the second half of the year as more customers and clients are signed up.
The company, which has done a lot of preferred financing over the past year, is, like many Net start-ups, tight on cash. NetCurrents burned $1.5 million in the March quarter and $3.9 million through the first six months of the year. With a little over $7 million in cash on hand, the company will likely seek additional financing arrangements in the coming months.
The uncertain pace of revenue growth and the weak financial position make NetCurrents stock an extremely speculative play at this point.
Although we would wait to see how the current quarter shapes up before making any commitments to the equity, this stock is worth tracking, as is the burgeoning field that it is pioneering.
For more in-house professional stock analysis and commentary, visit us at Individual Investor Online.
biz.yahoo.com |
