High tech stocks are a bit like this. Hot one day and cold the next. A little storm warning (e.g. lower than expected earnings reports) can cause everyone to run for cover, afraid of getting a little doused.
It is truly amazing how senior companies can lose half their value because of a short-term glitch in earnings. It doesn't take much to trigger an avalanche, perhaps due to knee-jerk reactions and stop-loss orders getting triggered to exacerbate matters further.
As an example, let's take a look at JetForm Corp (TSE:JFM), a good solid Ottawa-based company. JetForm lost almost half its value in a single day, closing at $8.90 on February 4th. A week later, the stock closed at $6.40, barely one-fifth of its 52-week high of $34.50. This decline is due to the company's warning that it would report a third quarter loss of $7 million compared to a profit of $3 million a year earlier. On the same day, the company announced a comprehensive internet strategy to enable Global 2000 organizations to deploy "e-processes." Maybe management thought that the lure of the internet would mitigate the negative earnings report and keep investors warm and happy.
This phenomenon always makes me wonder why those who thought the company was a good buy at higher values aren’t stocking up at bargain basement prices. It wasn't that long ago when IBM hit some stormy weather and investors bailed out at $50. Lately, the sailing has been smoother at almost four times that amount. If we re-visit some of the principles espoused earlier, i.e. management capability, investing for the long term, undervalued prices, then maybe this rough weather will cause some opportunities to surface. In the case of JetForm, its P/E is now at 15. Not a bad buy for a software deal!
Closer to home, Richmond's Epic Data International Inc. (TSE:EKD)has hit some turbulent weather. Its barometer has fallen more than 50% from recent 52-week highs of $15.50 to $6.90. On Feb. 2nd, the stock declined $4.20 to $8.80 on the company's announcement that profit dropped 15 per cent to $969,000 in the period ended Dec. 31 from $1.14-million a year earlier even though revenue rose 12 per cent. Quite a reaction, if you ask me. Hopefully its not a matter of hubris for Epic's CEO, John Anderson who extolled the company's virtues at last Fall's PriceWaterhouseCoopers technology conference. I certainly took a shine to Epic and put a few shares into my RRSP (and I'm not bailing). A Sprott Securities analyst says the market has over reacted and notes that Epic Data's order backlog is healthy and the company hasn't lost any large contracts.
Sierra Systems Group Inc. (TSE: SSG) of Vancouver recently saw a low front move in when it posted record first-quarter revenue (a gain of 22.4%) but, due to a 22% drop in earnings, investors cooled. The decline was attributed to excess costs on two large fixed-price projects, a non-recurring event. In fact the stock, which has been on the public market for less than a year, is trading near its annual low of $20. For those who missed the opportunity to buy on the IPO last April at $18, this may be your second chance.
In contrast, you'd think that if a company has a positive report, its share price would rise. However, that would be rare. This is because we generally expect improving results and meeting expectations is no reason to celebrate by buying more. Take Avcorp (TSE:AVP) Industries of Richmond as an example of this. Avcorp announced fiscal 1998 net income of $2.81 million on revenues of $66.9 million compared to net income of $2.12 million on revenues of $45.2 million in fiscal 1997. The stock has been stuck in the low $3.00 (near its year's low of $3.00) area for months. You can bet that until it shows some movement, investors will sit on the sidelines. Again, patience may be rewarded. Why not buy into a company that is performing well?
Obviously, markets are not very forgiving when companies fail to meet quarterly forecasts. Indeed they are somewhat punitive. So, if you believe that these companies have been sufficiently punished, you might want to take a closer look. They'll come back and reward you for patience and bravery.
Now, let's take a look at what the warm fronts are bringing in by way of some new B.C. public companies that are appearing on our radar screens. This is not an endorsement or recommendation, only an identification of companies that haven't previously appeared yet on the T-Net roster. Some are new but a few have been around for a while and may not have been detected as public listings. If any readers come across such companies, let us know and we can add them to the T-Net list.
Please note that NASDAQ (National Association of Securities Dealers Automated Quotation System) and OTCBB (Over-the-Counter Bulletin Board) are both U.S. based and prices are in U.S. Funds. Many folks think that the OTCBB is a junior NASDAQ exchange. This is absolutely untrue. The OTCBB is a wild and wooly exchange and trading must be done with caution (for example - if you put in a bid at "market", your order will certainly get filled. But, if you put in a bid below market, you'll likely also get a fill. When you want to sell, good luck!). The OTCBB is a new playground for many Canadian promoters who have either been booted off Canadian markets or who have, unfortunately, found Canadian regulations to be too bureaucratic and costly.
NTS Computer Systems Ltd. (TSE:NTS) is a Maple Ridge company which produces (in Ireland) a product line of affordable portable educational computers for students. We mentioned NTS a few columns ago and we apologize for not yet having included it on the T-Net list. NTS provides schools with a flexible mobile computer lab. NTS was named Canada's 8th fastest growing company based on revenue growth for the period 1992 to 1997. Jim Tocher, President and CEO of NTS, was a finalist for 1997 Entrepreneur of the Year in the category of High Technology for the Pacific Region. NTS is trading around $6.00, near the middle of its 52-week range of $3.60 to $8.80.
Dynamotive Technologies (NASDAQ:DYMTF), is a B.C. company started about a decade ago to commercialize three technologies: BioOil, an emission reduction process; DynaPower, a metal cleaning process; and actuator technologies used in both steel and aluminum welding. Annual revenues are just under $2 million. Stormy conditions at Dynamotive drew my attention to the company. The company's stock has dropped, not because of performance issues, but because the stock price has been purportedly manipulated by convertible debenture holders seeking to convert their debt to equity at lower share prices. You can read all about this at http://quote.yahoo.com (one of my favorite stock info sites) by looking up the company under its symbol DYMTF. The stock's annual hi/low is $3.00/$0.25 and is presently just over $1.00.
Orion Technologies Inc (OTCBB:ORTG) is in the business of delivering high quality electronic commerce and financial services to financial institutions and other enterprises. Orion has developed GlobalDEN®, a secure global network that provides electronic commerce, transaction processing and card services, remote banking, secure electronic messaging, electronic data interchange and electronic trading. Its stock is now trading at the low end of its 52-week trading range of $.43 to $8.00.
Icron Systems Inc. (ASE:ICM) is a Vancouver firm whose common were just posted for trading on the ASE on Feb. 4th. Icron became public via an amalgamation with Cardigan Capital Corp., a junior capital pool company listed on the Alberta Stock Exchange. Icron Systems Inc. is actively developing enhanced range Universal Serial Bus (USB) products and Icron Manufacturing Inc. is western Canada's newest contract electronics manufacturing services facility. The relationship between Icron Systems and Icron Manufacturing is not clear on the company's website. The stock is trading in the $.45 to $.55 range. It's always nice to get exposed to new opportunities such as this one.
CyPost Corporation (OTCBB:POST) is a North Vancouver company which is addressing the growing need for improved privacy and security for individuals on their computers and on the Internet. The company has only been public for a couple of months and trading is currently at the high end of its $.16 to $1.62 trading range. The company's website says that it is a NASDAQ OTC company, but as mentioned earlier, there is no such thing. Notwithstanding that, you can learn more about it at http://www.cypost.com.
Finally, on another note, I'd like to invite
you to a Vancouver Enterprise Forum presentation (Feb 23rd,
6pm) by one of B.C.'s biotech firms, Inflazyme Pharmaceuticals Inc. (VSE:IZP).
The company develops treatments for allergies, asthma and other respiratory
diseases and has just executed a $91-million (U.S.) collaboration deal
with Hoechst Marion Roussel, a unit of German drug giant Hoechst AG. The
stock is trading at the high end of its $.41 to $1.95 range. Details are
at http://www.vef.org.
Complimentary passes (normally $20) are available to the first 10 readers
who email me.
Copyright, 1999.