RE: Why is IOM stalled?
Truff and all,
I've got a very impressionistic speculation about the status
of IOM.
To start, let's state some of the current conditions of the
situation. Iomega's earnings growth and execution have been
very, very good. If it continues at anywhere near its recent
rate of growth and market penetration, its future earnings will
be very, very fine indeed. Currently, its PE is a tad high.
For example, it's higher than IBM's. Institutional ownership
has been growing, but it's still not all that huge. Next,
short ownership of the stock has been declining, but it's
still one of the most-shorted stocks around, and back in
1996 some very, very big shorters got very, very badly
burned by this stock. In addition, those of us who have
watched the behavior of the stock on options expiration
days, and have had some nice coaching on that from Ben A.
and others, all suspect that there are some big manipulators
out there working hard to push around the price of the stock
to maximize their revenues from it. And finally, we know that
most of the declines in price in the past year have been on
very low volume.
Now, with those conditions in mind, I'd say there are three
different types of player with this stock just now. Those
of us who have studied or worked in the PC industry and have
done our homework on Iomega are convinced that it is on track
to grow considerably more than it has already, and that its
earnings will track that growth. (Okay, we don't know exactly
how far this will go, but we're pretty sure it'll grow just
fine for another year or three, with or without Clik.) We
already are bought into the stock. Second, there are the
shorts out there, and my guess is that there are still some
very big ones left over from the crazy days of 1996. (I'll
get back to them in a bit.) Third, there are a bunch of
other investors, both institutional and individual, who
THINK that this stock is PROBABLY a winner, but they're
not convinced yet and are waiting for just a few more
indicators of acceptance of the Zip as "standard." They're
willing to sacrifice some of the profit they could get out
of this issue just now to avoid having to wait and wonder
the way we're doing. They're going to wait until the Zip
acceptance is even more obvious than it is now.
Now, what does this mean? It means that the group including
us already pretty much has its money in the stock, so we're
not going to drive it up further. It means that the more
cautious are standing there with their fingers on the trigger,
but at the moment they are invisible, and therefore they also
aren't running up the price. And finally, I'm guessing that,
in that environment, there are a relatively small number of
very desperate, very manipulative shorts out there who are
using these moments in the doldrums to do everything they
can to hold off the positive trend in this stock. It may
well be that it's going to cost them a huge bundle to close
out their short positions, and they're stalling to raise
the cash to do that, or to put the cash to some other use,
thinking that they've already taken most of the hit they're
going to take on the short, if any, and that therefore, given
the time value of money and the low volume as everybody
watches and waits, it's better to stall off their covering
as long as they can and to fiddle with the stock price by
pushing it down between 3 and 4 p.m. on the slow days. They
know full well that they can't stop the eventual rise of this
stock--Peter Lynch hasn't been proven wrong in his basic
premise about growth stocks yet--so they're trying to work
with that eventual growth as best they can to their own
advantage. We sit and watch in moderate frustration,
and the sideliners just wait for a move, and so the stock
drifts down.
It has happened before, especially at the end of the calendar
year. Here, look at a five-year chart, which shows some similarities
between the pattern at the end of 1997 and the pattern at the ends
of previous years:
tscn.com
(For laughs, note also the early version of a Y2K type of problem
with this chart. The horizontal axis has 1997 labeled "1998.")
For me, this situation is no problem. In fact, it's good, because
I'm a very long player, and I've not had any additional money to
buy IOM with. If this keeps up just a couple more months, though,
I should have some additional cash, and I'll buy more if it hasn't
gone through the roof. (For that reason only, I love the split;
otherwise, I'm with you about its inadvisability.) For you and
your ambition of earning over fifty per cent a year, though,
it might make a lot more sense to dump your long shares and
take the loss--it's your penalty for not acting on that sell
signal a while back <grin>--and then buy back in again when
the buy signal gets strong again. Were it not for that abnormal
short situation created by the madness of late 1995 and early
1996, this would be your garden variety hot growth stock, but
because of this short complication, the growth trajectory is
especially bumpy and manipulated.
I don't for a moment think there are any serious skeletons
in the Iomega closet. True, Clik still isn't a guaranteed
thing, and it won't be until it's at least announced in
what look like winner products, but that won't make or
break Iomega.
This is just my speculation, of course. Do your own research,
one and all. And happy trading to all.
Cheers, Tom (long IOM)
P.S. Allen's right about the USB being faster than a second
PP, of course. But the extra PP board will be easier. How much
are you willing to sweat to push the envelope? <g> That's
probably the determining question for you. |
