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Technology Stocks : THREE FIVE SYSTEM (TFS) - up from here? -- Ignore unavailable to you. Want to Upgrade?

To: N. Saliba who wrote (1496)	5/23/1998 12:27:00 PM
From: Noblesse Oblige	Read Replies (1) \| Respond to of 3247

Hi N Saliba.... As you have noted, predictability is important. Ironically, I have had this conversation with portions of senior management at varying times in the past. Moreover, I have pointed out to them that "smoothness" in results is what improves price/earnings ratios. In my own view, part of that effect comes from the fact that analysts are more willing to make coverage for companies that have the ability to smooth out earnings growth, as earnings are more "predictable" and such investments represent less career risk to the analyst. Just a cursory examination of TFS's reported results versus expectations over the last several years would tend to give credence to my theory as to why there is so little analytic coverage. After all, in comparison to a startup (or something as "gamey" as Kopin), it is hard to disappoint the "Street" when the investment community has bought a concept rather than an earnings flow. Some day...perhaps...TFS will come to recognize this fact of life. I doubt whether it is cognizant of this now, and despite my occasional lapses into literacy, I have never been able to persuade them that accounting is not an exact science, but merely an indication of how a company is doing (in a generally accepted way). Thus, to "meet" estimates in a quarter, some minor timing issues may resolve the expectations master. Thus, for example, if you already have your numbers in the bag (which might well have been the case in quarter three or four of last year) and you think that the first quarter numbers may be tougher, it would behoove you to "slow" shipments at Christmastime (assuming your customers don't object to that process). I don't find this unethical at all, the same amount of shipments go out the door, but the first quarter benefits at the expense of the fourth (which beat expectations anyway). These opportunities exist in a variety of places, and no one shoots the accountants for having smooth results. Anyway, this has certainly proven to be one of the "dogs" in the market, not really budging from this price for the last year (except for a small spike that lasted a few weeks some time in mid 1997). As a matter of fact, the shares now trade below the value the market placed on the stock when Mr. Buchanan found his way to CNBC to explain the future plans of the company simultaneous with reporting a thirteen cent quarter (early July...1997). Thus, the shares have lost ground covering a period of almost a year, since he intentionally raised the company's profile. One has to wonder why, when it must be so obvious to even management, that following efforts to raise the company's profile, the value of the company has risen... ...why so little effort is expended on an ongoing basis to do the same thing? It works!! So, why isn't it a priority? Eventually, this will result (at least in my view) in an unfriendly bid for the company. Considering how undervalued it truly is, it is just a question of time. All I can say is that if I were a senior officer and my continued remuneration and perks were dependent on the company staying independent, I would consider raising the valuation of the stock as my most important piece of business. But then, that is me, and they are they. Have a good weekend, N. Saliba.