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Strategies & Market Trends : Electronic Contract Manufacture (ECM) Sector -- Ignore unavailable to you. Want to Upgrade?

To: Creditman who wrote (1371)	3/23/1998 1:32:00 PM
From: 18acastra	Read Replies (2) \| Respond to of 2542

What is skinny on Merix - seems way overvalued. Company reports today. Already pre-announced quarter ahead of analyst expectations due to cost savings. If they do 25 cents this Q, would put them at run rate of $1.00 eps for year, and stock is over $20, so P/E of 20x. Even if believed in theory $1.50 of EPS earnings power in FY 99, would still have P/E of 13.5x. Hadco is trading at about 10x this years P/E and is a great company. Merix has a horrible operating history. They have one decent Q, and everybody jumps on bandwagon giving them credit for a future that may be difficult to realize. It reminds me of ACT mfg. (granted slightly different industry). They have 1 or 2 good Q's, many unknowledgeable investors jump on bandwagon, and pretty soon company reverts to its old ways and stock blows up. Seems to me like a good strategy potentially is to short Merix and go long Hadco or even some CEMs like jbil or flexf (even though different industry, stock market still lumps together from trading perspective). Risk is that over short term, Merix may show some earnings acceleration and get nice multiple off that (as opposed to evaluating true run-rate earnings power -> my hypothesis is that management is no good and company will revert to historic mean of poor performance) and Hadco will probably miss earnings (guessing, earnings miss seems to be implied by recent stock action and downgrades). For that reason, CEMs could be better offsetting long. My opinion. What do you think? What is reputation of Merix management and how do you think about the company?