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Strategies & Market Trends : DD'S Cellar Dweller Stock Watch -- Ignore unavailable to you. Want to Upgrade?

To: WEBNATURAL who wrote (104)	4/25/1999 11:43:00 PM
From: Jay Fisk	Respond to of 598

I think DIMD has stabilized after missing earnings estimates. Holding at the $5.00 level. Interesting forward business prospects with their MP3 handheld digital audio recorder, kinda like a solid-state walkman. Here's a comment from one of the boards: DIMD will have 1999 annual revenues of $650 - $700 million DIMD has a market value of approximately $180 million. That means the Price to Sales ratio is roughly .3. The average company in DIMD's industry (PC multimedia accessories) sells at 1-2 times revenues. If the market valued DIMD's revenues at the industry average, the stock would trade @ 20 (assuming 1.5 times sales). Simple enough, right? But the market doesn't value DIMD's revenues at the industry average in fact the market has currently assigned a significant discount to the value of DIMD's revenues. I am sure the market has its reasons, right or wrong, blaming management or another below expectation quarter, or whatever the fact is that the market has currently valued DIMD at .3 times revenues. That makes DIMD a very cheap stock. The average stock in the S&P 500 trades at 2 times sales. Ask yourself how low the DIMD discount deserves to get from here. Much lower would suggest financial distress. Financial distress does not appear to be an issue according to DIMD's balance sheet. If management can simply maintain its current level of revenues then the downside is very limited from here. Furthermore, the growth opportunities in front of DIMD should cause anyone familiar with the opportunities in on line music to ask not whether or not DIMD will grow its revenues, but rather how fast will DIMD be able to grow its revenues. Barring a massive blunder by management or an unlikely change in the positive outlook for MP3 technology, DIMD is positioned to ride the wave of the MP3 craze - Read the New York Times article from Sunday April 26. The making is here for significant upside from here. RioPort.Com The market will pay well in excess of 1 times revenue generated by the RioPort subsidiary. Assuming RioPort revenue achieves a price to sales multiple of 1 (likely to be much higher as the market pays a tremendous premium for internet driven revenues), but assuming a conservative multiple of 1 times sales, every 1 million dollars that RioPort generates should be equivalent to fifty cents in DIMD stock price. So if RioPort generates $100 million - this would equal 3 dollars. If RioPort were a publicly traded company, it would be priced at the open market around 10 times sales - valuing RIOPORT at $30 per share. That is a fair estimate judged on what the average IPO gets priced at…(and the average IPO .com also doubles on average after 1 month of trading). Therefore the value of RioPort could easily be $60 per share if spun off as a publicly traded stock. Companies have done that with a lot less than the RIO. Management has talked about this and I have confirmed that this discussion has taken place within the company. There is a very high probability of monetizing RioPort value through a separate IPO spun out from DIMD stock. In Conclusion... The Price to sales ratio is just one tool to use when finding "value" in the market, but it is also the most appropriate for a company in DIMD's position. Nonetheless DIMD is also cheap based on its Price to Earnings ratio (P/E). The expectations for DIMD earnings are $.79 for next year. Most companies focusing on new technology growth opportunities (such as the internet and internet content such as music and internet technology such as MP3).. most of these companies don't even have earnings - DIMD does and it's P/E ratio is 10 (times forward earnings). The market average P/E is 20. So DIMD is a value based on P/E that is half that of the average stock and less then half that of the average price to sales… but most importantly DIMD is a value because of the heretofore unrealized potential in RioPort. ------- The Rioport.com spin off potential valuation is tantalizing.