The sounds that accompany "bull markets" are beginning to be
heard. They should not be misunderstood. Few analysts consider it
appropriate to publicly cast doubts on expectations of higher share
prices. As is in their nature they are "bullish" about companies that
have as yet to earn a cent. Aiding them are the executives who
predict company profitability to be just around the corner. Surely,
it is a sign for some investors to snap up the shares, preferably
before others do the same.
We would prefer to wake up one morning and hear of "real profits" in
lieu of "predicted profits". Given Imaging, a medical technology
company, just for one instance, traded at a year's low in 2003, at
$6.50. Last month was priced at $29.50. Net loss for the full year
2003 was $9.6 million or $(0.38) per share, compared to a net loss of
$18.3 million or $(0.73) per share for the year in 2002. that is what
we call a "bubbly, frothy and volatile" performance.
AudioCodes, a voice over the Internet company, whose share in the
past year traded as low as $2.20 recently was priced above $16. The
company reported that "its fourth quarter financial results capped a
strong performance for AudioCodes in 2003 with annual revenues
growing 62% year-over-year and a reduction in net loss". In the same
report the company states that its net loss for 2003 was $8.4
million, or $(0.22) per share compared to a net loss of $14.2
million, or $(0.37) share in 2002.
Predicting future share price movements for Given Imaging or
AudioCodes is hazardous. Given Imaging has brilliant technology, a
limited market and so far, only one product.
AudioCodes also is a fascinating technology company but it operates
in a highly competitive market. Neither company is likely to report
at the end of the current year that profits will double or triple in
2005.
As America's economy improves company sales will grow. But
profits are the basis for share valuation. Warren Buffet agrees.
Those who have studied the methodology of the world's most successful
investor, have noticed that all of the companies bring with them a
history of profitability.
Stock Screens, available free of charge on the Internet allow for
qualitative analysis. They are of little help in assessing the
quality of "losses".
Wall Street is expensive and share prices may reach unsupportable
levels. Only then the speculators and the followers of the herd will
remain. There is nothing wrong with "playing stock markets". That is
if one can absorb "the pain" when prices fall.
The readers of this report tend not to let their excitement for
technology cloud their investment decisions.
We continue to feel that private equity investors will be the true
big winners in the future and we will continue to feature companies
whose technologies have a capability to change how things are done
and can reach profitability in 3-4 years.