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Technology Stocks : Wind River going up, up, up! -- Ignore unavailable to you. Want to Upgrade?

To: Helen Oliver who wrote (4156)	1/28/1999 11:08:00 PM
From: Allen Benn	Respond to of 10309

Is WIND an attractive buy at this price? The answer turns on one and only one issue. Is WIND's future outlook likely to result in decent earnings growth? By decent, I mean a sustainable minimum of at least 20% per annum. If you believe so, then WIND's compressed forward looking P/E of less than 30 is attractive, and ultimately the new investor must be rewarded handsomely. Only if WIND's future is impacted inordinately by Microsoft, or squeezed significantly by INTS, as hinted by H&Q, might you regret buying the stock after a year or so from now. I consider either unlikely. It is my policy to not comment about short-term stock price movement. The stock market has always surprised me, but lately it amazes me. Unfortunately, the short term easily can comprise two years, and occasionally longer, even much longer. The only reason I said “a year or so” earlier is that WIND already has been consolidating for two years, so I expect WIND to break out of the penalty box sometime this year. But that's just a guess. All analysts following the company, with the stark exception of H&Q, appear to have retained their high rating and enthusiasm for WIND's attractive outlook. Mike Stanek, the analyst who inadvertently triggered the sell-off Friday has not lowered any of his estimates, and retains his pre-Friday target price of $60. The approach WIND uses to backlog sales has proved successful, while easing the difficulty of meeting analyst estimates. Nevertheless, as I have posted exhaustively in the past, there remain serious deficiencies in the meeting-the-estimates game, however it is managed. With two stock crashes within four months – presumably for no valid reason – I now believe these deficiencies in the game itself make the company vulnerable to attack by speculators. In fact, WIND's stellar ability to always make estimates may actually contribute to the company's vulnerability to attack. (Don't think this means that the solution is to be less stellar!) In very general terms, I think the problem boils down to analysts lacking sufficient information defining the linkage of exogenous projections of drivers like 32-bit microprocessors, projections of cable modems, wireless telephones, or even generic Internet Appliances, to calculate WIND revenues. That is one of the attractions of I2O. I2O royalty revenues can be approximated simply by multiplying units shipped by $1.50. Given the ability to derive revenues from the bottom up, by aggregating the contribution from various sources, analysts can then relax about current company execution. Stated differently, analysts cause fewer panics when they are able to develop models from the bottom up. Indeed, with bottoms-up data, analysts actually derive revenue and profit estimates, and simply make minor adjustments in response to most variances in actual performance. But even with the recent stock crashes, the stock is cheap at $33. Allen