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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Keliven Wong who wrote (3958)	4/30/1998 3:24:00 PM
From: 18acastra	Read Replies (1) \| Respond to of 78470

Globaltech (GAI) seems to me to be a great value opportunity. The stock is currently trading at $19, I believe at a minimum it should be trading in the low 30's. The company was taken public in an IPO about 3 weeks ago so is still relatively undiscovered. Following is a brief description of the business and my tartget price rationale: Valuation: Sales 3/31/97: $62.7mm; Sales 3/31/98: $116.7mm (86% growth); Analyst Estimate Sales 3/31/99: $165.2mm (42% growth - I believe these numbers are too low). Apparantly, analyst estimates from the IPO roadshow are $1.70 EPS CY 1998 and $2.25 CY 1999, or growth of 33%. At $19/share, this company has an 11 P/E and is growing at 33% using the analyst estimates for earnings this year (which I believe to be very conservative as they are with many new public companies). Its PEG ratio is therefore on 33%. Globaltech's best public comparable is a company called Windmere Durable Holdings (WND). It trades at a P/E of 18x CY 1998 earnings at its current price of $25/share. Windmere is growing sales and earnings in the 20%-25% range. Globaltech is growing significantly faster and has a better business model with its original design capability (described below), so at a minimum should get at least an equivalent P/E. At 18x P/E, Globaltech trades up to $31, 63% appreciation from its current price. If it were to trade at a 25 P/E, a 25% discount to what I believe to be its conservative analyst estimated growth rate of 33% in earnings, Globaltech would trade up to $42.50, 123% appreciation from its current price. Business Description: Globaltech is an orignal design manufacturer (ODM) focused on the consumer products industry (as opposed to the more traditional CEM's). What this means is that Globaltech designs and builds finished products for an OEM as opposed to the typical contract manufacturer which only builds (although there is tremendous engineering value-added here too) product. Globaltech's product line is focused on the high-end of the consumer segment and includes things like breadmaker's and foodsteamer's. All of Globaltech's manufacturing is located in China, so they are very low cost, and in combination with their orignal design capability and rapid manufacturing process, offer a huge value proposition to OEM's (as indicated by their 25% gross margins vs. 10% for a typical contract manufacturer). Here is evidence of the value proposition: Sales 3/31/97: $62.7mm; Sales 3/31/98: $116.7mm (86% growth); Analyst Estimate Sales 3/31/99: $165.2mm (42% growth - I believe these numbers are too low). The reason Globaltech is growing so fast is three-fold: 1) They are much lower cost than American and European OEMs. Unlike the typical electronics OEMS, many consumer products OEMs still have very high cost captive domestic manufacturing. Globaltech can do things at about half the cost of the typical OEM 2) Rapid new product design and introduction capability. Many OEMs are ponderous, and have long product design in introduction cycles. Because of this, they often fail to capitalize of hot consumer trends because they can not get product to market quickly enough. 3) The marketspace for what Globaltech does is huge. Here is the bad news on the company, which is why I think the IPO has not traded up significantly. Sunbeam will account for in the neighborhood of 35% of sales this year. Although Sunbeam is somewhat of a concern, here are some important facts to consider. 1) The comapny was taken public after the Sunbeam debacle, and management and the underwriters were comfortable with the issue 2) Most of Sunbeam's problems have to do with gas grills, which is what they stuffed the channel with to inflate their sales numbers. The products Gloabaltech makes for them are things like breadmakers and foodsteamers, so not the things causing Sunbeam grief. 3) Sunbeam has already gutted their organization internally both in terms of production capability and new product design/and introduction capability so they will need to rely on Globaltech to help them continue to grow their business 4) Nearly all of Globaltech's growth will come from customer's other than Sunbeam, so Sunbeam should decrease as a percentage of sales over time. Other key Globaltech customers include Black&Decker, Mr. Coffee, Moulinex, Krups, Procter-Silex, Welbilt, Revlon, and Hamilton Beach. Conclusion: I believe that Globaltech has a truly unique capability and offers a strong value proposition to a large marketspace. I think the IPO has not traded up significantly due to all the overhang from Sunbeam (which is a legitimate concern), and has now fallen off of people's radar screens, which has created a great buying opportunity. I believe the Sunbeam issue is completely misunderstood by Wall Street for the reasons mentioned above. Once Globaltech begins to report their numbers, and things turn out fine, people will begin to take notice. The sock is trading at such a significant discount to its growth rate that the value will be too compelling for people to ignore. If it turns out that anlaysts estimates are too low (which I believe they are), and Globaltech starts beating earnings estimates, this stock will be all over everybody's radar screen. A stock trading at an 11x P/E growing at 40% should attract a lot of attention. My opinion.

To: Keliven Wong who wrote (3958)	5/1/1998 12:51:00 AM
From: Wright Sullivan	Read Replies (1) \| Respond to of 78470

Re: CHKPF (Check Point Software Technologies Ltd.) You are correct, with a PSR of 10, CHKPF does flunk the margin of safety test. And MSFT may incorporate many of CHKPF's Firewall-1 features in NT-5.0 as they have gutted other companies' crown jewels in the past. But here is what I see: 1Q97 2Q97 3Q97 4Q97 1Q98 ttm 1997 1998 1999 Est Earnings: n/a 0.16 0.18 0.30 0.32 1.45 1.75 Act Earnings: 0.17 0.21 0.32 0.37 0.41 1.31 1.07 Chg from qtr: 24% 52% 16% 11% Chg from 1yr: 113% 117% 220% 147% 141% Revenues $mil: 13.7 17.3 22.4 29.6 30.9 100.2 83.0 Chg from qtr: 26% 29% 32% 4% Chg from 1yr: 183% 134% 179% 155% 125% Current Price: $29-3/8 Shares Outstanding: 35.6 million Market Cap: $1.046 billion Price/Sales (ttm): 10.44 Price/Earnings (ttm): 22.42 Price/Earnings (1997): 27.45 Price/Earnings (1998 est): 20.46 Price/Earnings (1999 est): 16.79 Pro: - P/E extremely low compared to est. growth of 40% - Earnings have consistently outperformed estimates - CHKPF has approximately 40% of firewall market share (a "gorilla") - Profit margins excellent and increasing - Focus expanded beyond firewalls to virtual private networks (VPN) - Key player in emerging business-to-business communications/commerce - Explosive internet growth requires security products at ISP's, etc. - 50% of CHKPF sales are on non-WinNT (i.e. non-MSFT) systems. Con: - Slow revenue growth in most recent quarter of 4% over previous qtr. - No margin of safety with PSR of 10 - Firewalls may be in danger of becoming a commodity product - Titans are interested in CHKPF's market (CSCO, MSFT, etc.) - Many other security companies trying to build a complete VPN or security solution (AXNT, Net. Assoc., etc.) Conclusion: While there is substantial risk with little or no downside protection (hey, it's a software company), this stock appears to be significantly undervalued at $29-3/8. Any comments?