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Worms on the Internet, Worms Running Companies |
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Friday, 22 August 2003 |
good investment.
Today's closing price is 16 times their 52 week low. The Price/Earnings ratio is 87. By comparison, Wal-Mart's P/E ratio is 30.
The nice thing about public companies is how much they are required to disclose. There are a few good tidbits in a recent Dow Jones article. They managed to make a profit in their last quarter of $3.1M on earnings of $20M. A nice improvement over the $4.5M loss in the same quarter next year, and they predict revenues of $22-25M next quarter.
But read between the lines and their story gets fishy...
The $22-25M next quarter includes $10-12M in revenues from their new "licensing initiative". Without penguin blood money, revenues will actually fall to $10-15M next quarter. If they only made $3.1M last quarter on $20M, they will likely post a loss of $2-7M next quarter on those earnings (software company's costs don't vary very much with revenues, this is why MS has $49B in cash).
Even Enron executives would envy the ability to turn a $2-7M loss into a $5-8M profit. The potential loses are 15-50% of their cash on hand, a burn rate capable of bankrupting the company in 2-7 quarters, unless SuperLawer comes to save the day. Speaking of lawyers, this looks like an ambulance chaser arrangement with the lawyers taking a piece of the winnings.
From an investor's perspective, the whole thing hinges on how believable their legal wranglings are. And for investors, I think they're putting on a pretty good show. They get plenty of press, have collected fees from MS, and announced a Fortune 500 company signed the new license initiative.
As an investor watching the news wire it looks like a good bet. I just hope the truth comes out and SCO joins the likes of Enron and Worldcom. I'll buy the beers for McBride's congressional hearing.
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