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Technology Stocks : RATIONAL SOFTWARE- BUY OR HOLD -- Ignore unavailable to you. Want to Upgrade?

To: Bosco who wrote (2472)	6/9/1998 4:26:00 PM
From: Alomex	Read Replies (3) \| Respond to of 3115

I've followed this company for a quite a long time. Since the days a quarter of it was known as Pure. I always liked their products and think their technology is top notch. However I've spent more time on the short side than the long side based solely on fundamentals. I have made money going long on both Pure-Atria and now the combined Rational. But overall IMHO this company is still overvalued. Revenue (consolidated) declined slightly year over year while earnings stayed flat. Lets operate under optimistic assumptions and we get that revenue will start growing again and earnings will double, assume a 20 P/E and what do we get? $16.50 per share. How optimistic are the assumptions? Very. Revenue has not grown in ages and profit margin is stuck at below 18% for the last six quarters. For earnings to double, profit margins should reach 25% (double those of oracle, peoplesoft, baan). In other words, the optimistic assumptions are perhaps achievable but hardly surpassable. In a year from now when everything has gone according to plans, we would have that at long last this company is worth $16.50 per share and with little possibility of revenue growth. I expected RATL to post significant revenue growth this two past quarters and they did not. I'm on to greener pastures. If this company ever starts growing again, there'll be plenty of time to jump back in. It's not like its going anywhere! (heck current price is lower than end of February 1996).