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Technology Stocks : Ascend Communications (ASND) -- Ignore unavailable to you. Want to Upgrade?

To: Larry J. who wrote (20488)	11/2/1997 11:46:00 AM
From: Jeff Jordan	Read Replies (1) \| Respond to of 61433

Here is what was being said about Ascend and other networks in Feb. 1997! Its a good comparison to feelings and attitudes today. And which 2 companies have been aquired? and what was the %below 52wk high? this paste is from Briefings.com: stock Brief Nattering Nabobs of Negativism Daily commentary updated February 6, 1997 If it could, we think the besieged networking industry might define the investment community in the same way former Vice President Spiro Agnew did the press corp. Such was not the case just a month or two ago, when investors were driving many of the stocks within this sector steadily higher. But that was then, and this is now. And now is not a good time to be long networking stocks. Discouraged by a slowdown in the growth rates of revenues and earnings, the investment community has turned negative on this once high-flying sector. The carnage is revealed in the table below: Stock % Below 52-wk High Stock % Below 52-wk High Shiva (SHVA) 80% U.S. Robotics (USRX) 40% Cascade Comm. (CSCC) 60 FORE Systems (FORE) 36 Vanstar (VST) 50 Three Com (COMS) 33 Bay Networks (BAY) 41 Cabletron Systems (CS) 28 Ascend (ASND), Newbridge Networks (NN) and Cisco Systems (CSCO) have also stumbled in recent sessions, though the selling in each case has been more controlled. In addition, these three stocks remain at, or above, their long-term moving averages. Expectations Game Networking companies are discovering that the expectations game, like any other, is more fun to win than it is to lose. Given the scope of the declines highlighted above, one would think that the group had seriously disappointed street estimates in the most recent quarter. But truth be told, of the eleven stocks we follow within this group only two (Bay Networks and Shiva) reported negative earnings surprises. So why all the selling? By repeatedly beating the street's earnings estimates in quarters past, the group had set a very high, and ultimately unsustainable, standard for itself. Take Ascend Communications for example. In the two quarters preceding the most recent one, the company's earnings beat the mean street estimate by 25% and 20%, respectively. Though the company managed to exceed street estimates again last quarter it did so by only 3%. Companies within the sector are also experiencing a slowdown in sequential revenue growth. Again, the growth rates are positive, even impressive, just not spectacular as they were in quarters past. The result of these changes in the growth rates of earnings and revenues is that the street has begun to lower its expectations a bit. Of course, reduced expectations lead to lower multiples. Fishin Time Though a few of the stocks within the group had run ahead of their fundamentals during the most recent advance, we believe that the pendulum has now swung too far in the other direction. In other words, it is time to do a little bottom fishing. Those stocks which stand out as long-term buying opportunities are U.S. Robotics, Shiva, Cabletron Systems, Vanstar and Three Com. As depicted in the table below, each of these stocks sport a relative p/e below the industry average and trade at a steep discount to their long-term growth rates. Stock P-E/LTGR* Relative P-E (to S&P 500)** U.S. Robotics (USRX) 57% 112% Shiva (SHVA) 57 132 Cabletron Systems (CS) 73 107 Vanstar (VST) 74 91 Three Com (COMS) 74 133 Historically, networking stocks have traded at close to 100% of their long-term growth rates. *Typically, stocks in the industry have traded at relative p-es of near 200%. The current average is 167%. Cisco (CSCO), Ascend (ASND) and FORE Systems (FORE) are somewhat less undervalued but still strong candidates for a turnaround based on more constructive technical pictures and/or much superior growth rates to both the industry and the S&P. In fact, the average annual growth rate for the S&P 500 over the next 5-yrs is projected by analysts to be 7.3%. The average long-term growth rate for the 8 stocks highlighted above over the same time frame is estimated to be 34.3%. Conclusion Increased competition, pricing pressures and industry maturation have led to a slowing in the once spectacular sales/earnings growth rates enjoyed by the networking group. This slowdown has triggered an industry-wide freefall, as the investment community is busy downsizing its expectations. However, in Briefing's opinion the market has swung too far in the opposite direction and the selling is now overdone. While it is always difficult to buy amid a barrage of bad news and steadily declining prices, our analysis shows that many of these stocks are now trading at very attractive levels given their still very bright future growth prospects. In our opinion, patient, aggressive growth investors will be well rewarded by taking advantage of the current retreat to (re)enter long positions. Of course, the price volatility exhibited by the stocks within this sector make them investment candidates for only the most risk tolerant investors.