"Gonzo money manager Jim Cramer has banned trading
of Ascend at his firm."
November 10, 1997
"The Scariest Tech Stock Ever!
The Ups and Downs of Ascend"
Andrew Serwer
"Once upon a time--like last January--Ascend was the most
appropriately named company in the world. Following its 1994 IPO,
its stock soared from about $1.50 (split-adjusted) to $80. At the
start of the year, Ascend--a maker of high-speed, remote-access
networking equipment--was the darling of momentum investors. For
one brief, shining moment its market cap climbed all the way to $9.7
billion, equaling that of Nike's."
"And then Ascend began to descend--and it was stunning. It went
with neither a single bang nor a whimper, but rather with a series of
scattered explosions that's left investors shell-shocked. Ascend isn't
just damaged goods; it's radioactive."
"Today the stock has a beta of more than 2.0, which means it's twice
as volatile as the overall market. Analysts change recommendations
on Ascend wildly and gripe about the lack of information from CEO
Mory Ejabat. Gonzo money manager Jim Cramer has banned trading
of Ascend at his firm. When a reporter calls another Wall Street firm
about Ascend, a trader derisively calls the stock "Ass-end." The
firm's senior trader, thinking his colleague is making a pitch to a client,
interrupts the call and asks him to shut up. "We don't want customers
to get in that stock," he explains."
"How did it come to this? How did a company that was so loved
become so hated so quickly? In a sense Ascend is a victim of its own
success. The company was founded in 1989 in Alameda, Cal. In
1995 revenues climbed some 300%; the stock shot up tenfold and
split three times. The huge moves in Ascend's stock showed that the
momentum crowd--investors who buy and sell based more on
statistical performance than on company fundamentals--had moved
in."
"Momentum
investors are
great--as long as a
company's
earnings growth
rate keeps
climbing. But
come the first sign
of slowing growth,
they're gone. And
in the first quarter
of this year,
Ascend's earnings growth fell from around 200% to 100%. (Other
companies would kill to have such a problem.) As the stock dropped
from $80 to $40, average daily trading volume grew from five million
shares to more than 20 million. Still, Ascend had a lot of believers on
Wall Street, including big-gun analysts like Paul Johnson at
Robertson Stephens. True, Ascend was experiencing problems, such
as a software bug in one product line, but they appeared to be only
temporary."
"On March 30, Ascend announced it was buying Cascade, another
networking company. The stock fell from $50 to $40, then climbed
to $48, then fell to $38, all in the month of April. By then, long and
short hedge funds were battling over the stock. Rumors were rife
about whether the company would "make its numbers" for the
second quarter."
"As it turns out, Ascend's second-quarter numbers weren't so terrible.
Still, questions dogged the company about slowing demand in
Europe and product transitions. In late July, analysts say, Ejabat told
investors at a conference that business was fine. Then, on Aug. 11,
the company filed an SEC document relating to the Cascade merger.
In it were the company's results from July, so the filing amounted to
an interim quarterly report. The numbers, say some analysts, were
weaker than what they'd expected based on Ejabat's comments just
a few days earlier. The stock fell from $49 to $44 in a day."
"Since then it's been a nonstop bloodbath, with the stock falling all the
way to $32. Fourteen analysts have downgraded the stock since the
beginning of September, and many have taken to trashing the
company in daily wire reports. "There is hope the stock won't go to
zero," said one caustically. The bottom line, analysts say, is that the
company just doesn't know how to communicate with Wall Street.
"We are aware that some people have that perception," says Bernie
Schneider, Ascend's treasurer. "Others do not, but we're not going to
get into it any more than that."
"Fine. So can Ascend ever, you know, ascend again? Maybe. "I don't
think Ascend's problems are so bad," says Roger McNamee, of the
Silicon Valley money management firm Integral Capital Partners.
"They're no worse than AMD's or Gateway's, and yet this stock gets
killed. Why? Because of the fast-money crowd that played in its
stock. The upside and downside get so exaggerated that the market
can't figure out how to value the stock anymore." One thing's for
sure: The stock is cheaper than it was way back in January."
from Fortune Mag's current "Digital Watch"http://www.pathfinder.com/@@TSNjrgUApSnGO1zQ/fortune/digitalwatch/1110dig.html
Regards
BTW, pro, con or agnostic ASND, Cramer is easily the best thing on CNBC. For that reason I'll probably subscribe to thestreet before too long. |
