Nice posts from the YHOO thread on Xylan:
by: mfuge 3007 of 3010
Hopefully I'll be able to fit this into one message. This is an interesting board, to say the least.
Guess I'll reply to this message first, by Niner, on November 4. Someone else called Niner a short. Could be. Either that or he's ignoring the obvious. He/she said that Xylan is only reporting fractional gains, while others are rising 1 or 2 points. My guess would be that this has been because it is much easier for a 60+ dollar stock like Cisco to rise 1 or 2 points than a $14 to $15 (at the time!!) stock like Xylan. Common sense.
Also, as a note, I got in this stock at $14.25 somewhere in the mid to late teens of October, after the earnings report. To me, the movement in this stock has been anything but boring, as some had been saying as late as Nov. 4. Granted most of the movement has been in the last couple of days, but except for a brief period after I bought it XYLN has gone nowhere but up, although it was slowly, at first.
In repsonse to some of the posts that are questioning the valuation and why it hadn't moved, I must say that I was a little
worried when I bought this initially. There were a few reasons, many of which have been covered by previous posts. The Alcatel buyout of Packet Engines was my main concern. Someone said that this is an unrelated product. If this is true than I'm not that concerned. But IBM and Alcatel had been repsonsible for much of the revenue of XYLN. I read somewhere (a research report?) that Alcatel makes very little margin on the XYLN product and they were buying Packet Engines because of this.
On the plus side, I also read that the OmniStack line is growing very rapidly, reducing the dependence on IBM and Alcatel.
Also, I think it is quite possible that Cisco or Lucent could buy out Xylan. They are the perfect candidate for a buyout. They have great products in an industry segment that is in its infancy and are currently at a low valuation. (Compared to other stocks in the industry.)
In response to the clown from late October who said that this company's products suck or whatever he said and that the real companies are CSCO and COMS, I have this to say. The last earnings report from COMS (3COM) is what sucked. Flat revenue growth and EPS of .26 per share. Yawn! And this is from a company currently trading at $34 per share. Even if the earnings
estimates of $1.95 per share for 12/99 come true, this stock is trading at 18 times '99 earnings. The likelihood of $1.95 is anything but assured, as well. Most of COMS's revenue comes from mature product lines that have become commodity products, such as NIC's, hubs, modems, etc. I'd be willing to bet that these three product lines still make up at LEAST 50% of 3COM's earnings. And these industries are not going to grow for 3COM. They have the largest percentage of the market for these products by far. They have already won the war. This does you no good unless you bought COMS four years ago, which you probably didn't, because you are obviously afraid of investing in companies that haven't been public for 5 years and don't carry P/E's of forty plus. As far as CSCO...Great company. Absurd (70x earnings) price. Again, you should have been in four years ago. But you were probably too busy buying Philip Morris. The best time to sell 3COM was also when it had a P/E of 60-something and traded at around $90. Then, after a very ill-advised buyout of U.S. Robotics near its all time high, the stock crashed to earth after
the inevitable price drop in modems occured. Good luck.
by: mfuge 3008 of 3010
This is actually a relpy to several messages previously posted. I do think that Xylan is underpriced relative to CSCO and LU. However, there are reasons for this. These are the previous concerns I mentioned earlier, as well as one of the very reasons people are buying, growth of earnings. While Xylan's earnings growth record has been tremendous to this point, the last couple of quarters, it has slowed to roughly 8 to 10 percent when compared to the immediately preceding quarter. The growth had been much stronger previously. It looked like there was no end in sight. Hence, the company was trading at 40 to 50 times earnings like its peers. The shorts must have known that there were concerns at IBM and Alcatel, or else just figured that someone like better-established players Cisco or 3COM would either develop or acquire a competing product. Also, contrary to what they teach in college Investments or Finance courses, people
actually do look at earnings growth compared to the preceding quarter, not just the year-ago quarter.
Now, however, the stock is more reasonably valued at the shorts are not taking the chance that earnings will slow further. I think that the growth of the OmniStack product, as well as the recent entry of Xylan into the VAR market is scaring the shorts and they are covering while they can. Xylan made a very good decision to enter the VAR market by selling through distributors like Ingram-Micro, Tech Data, and Merisel. This will get their products sold by many smaller VAR's and lessen dependence on IBM and Alcatel. Also, another positive is the Lucent relationship. I read that they have endorsed the Xylan product line for use with xDSL technology. I am not going to get into this, but the growth potential is huge for xDSL technology, in my opinion.
Also, the best time in history to buy Cisco Systems was when they
"suffered" a similar slowing in sequential earings growth. In 1994, I believe it was the third quarter, Cisco reported earnings that were up something like %60 compared to the 1993 quarter, but only up something like 8 percent compared to June 1994. Historically, their rates had been much higher, on a sequential basis. There were also hot rumors in the industry that their products were sitting on the shelves at distributors. This was the last time that Cisco had a trailing P/E of less than 20, as subsequent quarters returned to impressive growth rates and the rumors were proven to be unfounded. Since then, the stock has risen ten-fold. Unfortunately, I did not buy CSCO. I did buy XYLN and hope the same will happen. However, I am happy with a price in the low 20's, for now, since I don't see XYLN immediately (within 2 months) easing people's previous concerns. If the September quarter grows significantly compared to June and/or if the companies success with the OmniStack product and the VAR channel continues, the confidence in the companies growth will be restored, and so will the P/E and stock price. Right now, although the yearly earnings growth rate appears to be better than that of CSCO and LU, it is the uncertainty that this will continue that is keeping the stock price down. Time will tell.
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