Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: diana g who wrote (2676)	10/16/1998 9:04:00 AM
From: Tony van Werkhooven	Respond to of 3115

Following is positive commentary from Online Investor. The last paragraph is particularly pertinent- incremental contribution to the bottom line from sales growth is very large. Commitment to sales training will support additional sales growth: Turnaround Taking Hold? It's been nearly two years since the high-flying Rational Software (Nasdaq:RATL) tumbled back to earth, but there are hints that a turnaround is taking hold now. The stock jumped over 3 points on Thursday after the company reported better-than-expected earnings. Investors should be extremely cautious about this week's events since turnaround stories often don't pan out. That's especially true in the tech sector where short product cycles and a rapidly-changing technology environment make it difficult for companies to regain their stride. But if Rational Software is truly back on track, the growth potential is impressive. Rational makes products that allow software developers to create complex programs using "building blocks" instead of writing code line by line. As demand for graphical "object-oriented" development products blossomed, the stock soared from a split-adjusted $3 in 1994 to $44 by late-1996. But the stock faltered in 1997 due to a series of expensive acquisitions that diluted earnings and created operational difficulties for the company. Revenue growth slowed and profits turned into losses while Rational struggled to integrate its acquisitions of SQA and Pure Atria. Competitive pressures from Oracle added to the uncertainty surrounding Rational Software's future, and its share price fell as low as $7 a year ago. But the company's close working relationship with Microsoft gradually began to pay off and Rational returned to profitability in the past four quarters. In its latest quarterly results reported after the close on Wednesday, the company posted revenue growth of 27% vs. the year-ago period and earnings per share of $0.14, 2 cents better than expected and reversing the $0.74 loss from a year ago. In the wake of this positive earnings news, the stock popped over 3 points to $18 on Thursday. The gain probably also reflected Rational's announcement of a stock repurchase plan involving 6 million shares or 7% of outstanding. Most importantly, these results support expectations that new product introductions would drive a reacceleration in growth this year. Even before Wednesday's upside earnings surprise, the consensus forecast was for EPS growth of 90% to $0.55 this year (fiscal year ending March 1999) and $0.71 next year. The long-term growth rate is seen at 31%. It bears repeating that turnaround stories rarely pan out, and those that do often take years for the stock price to fully recover. But with software stocks, when business clicks their huge profit margins can make for rapid earnings growth and very generous valuations from Wall Street. 10/15/98 4:29 PM