For a moment the Enron affair seemed to become irrelevant old news, but it grabbed the headlines again in the past two days. This time it was different and far worse. On Friday, investors slaughtered IBM and NVIDIA, a large, California-based maker of graphics processors and media communications devices.
”People prefer to stay out until the scope of the problem becomes clear,” Steven told us. “I’m telling you I can’t recall such lack of confidence since I started working on Wall Street, and that was a long time ago.”
Why do you think Comverse Technology (Nasdaq: CMVT) is sliding the way it is? Because Merrill Lynch said once that the stock could fall as low as $5? Nonsense. The stock climbed to $25 after Merrill said that. The stock has been going down of late because investors are scared over what analysts may say after the financials are out. Analysts are looking for reasons for not recommending stocks with the same energy they were looking for reasons to recommend them in March 2000.
We have no explanation for the huge short position in Lumenis (LUME). It happened long before the Enron affair and accountancy problems made the headlines. In the past few days, however, we haven’t a doubt that the decline is due to investors’ apprehension over what they may see on February 28, when the company puts out its financial statements for the fourth quarter and the whole of 2001. They’re not worried about sales. The company has already published its estimated fourth-quarter sales figures. Investors are scared over the Coherent deal and the whole picture.
How do we know that’s the reason for the fall in the stock? From the e-mails we’re getting. We also asked Steven’s friends to check what the market was saying about he company, and they came up with several things. The first was financials jitters. The second was the question why it’s taking the company so long to put out its financials. To this should be added the strangely worded announcement about a possible financing round. A connection was established between that possible financing round and the convertible bonds’ falling due in September.
It’s true that the convertible bonds fall due in September and the company will have to pay up. It’s also true that to do so, the company needn’t hold a financing round. So why claim that the company is considering raising money through convertible bonds to pay convertible bonds? Laymen who read the announcement form the impression that if the company doesn’t hold a financing round, it’ll find it difficult to pay up, and that’s definitely not true. (That’s what the announcement explicitly says, but who reads such things to the end?) At such times, when each announcement is examined for Enronitis, many investors see the empty half of the glass.
We’re sorry we had to write about Lumenis nearly every day in the past week, but judging from the feedback we’re getting, it appears that everybody’s in the same boat, in the sense that nobody understands what's going on here. Lumenis must revive investor confidence. So must Comverse and IBM, despite the different circumstances. The management must check each and every word in company announcements, because thousands of eyes are checking every word, and they all belong to nervous investors (except the shortists, in the meantime. They seem to be rather calm, because the stock is quite weak).
At this stage, even purchases by parties at interest aren’t possible. So what can a company like Lumenis do? Not much. Just put out a reassuring, unequivocal announcement about sales first-quarter sales and the forthcoming financials for the fourth quarter of 2001. Investors are practically demanding that. The proof is the p/e ratio of 7 for the present year, which means the stock can be had virtually for free. Investors are conveying the message they don’t believe it. There’s no other way to interpret the falls.
Lumenis has yet another secret weapon, and we’re surprised the public hasn’t been informed about it. Acne treatment. A study due to come out at the skin doctors’ conference in New Orleans this week shows there’s a growing market of $10 billion for laser treatment of three widespread diseases. The acne market is $5 billion, and the study refers to Lumenis’ new devices. Three other companies are also competing for this huge market (in which treatment is currently done with ointment), but Lumenis appears to be the leader.
Even if we compare Lumenis with companies like DUSA Pharmaceutical (DUSA), Miravent Medical Technologies and Candela Corporation (CLZR), it’s clear that Lumenis is the gorilla in this market. Lumenis spends about $26 million on R&D, which is very significant in markets like the skin-treatment market. When you’re the leader in a $10 billion market, and when all experts agree your EPS will be $2 this year, there’s only one explanation to your share being traded at $14 per share: lack of trust.
It’s already happened to TTI Team Telecom International (Nasdaq: TTIL). Teva (Nasdaq: TEVA) went several such episodes, and so did Check Point (Nasdaq: CHKP) in the more distant past. But none went through it under such an onslaught by shortists, which only fuels the distrust.
Since we know Lumenis chairman Prof. Frenkel and Lumenis president Yacha Sutton just as well as we know Teva’s Eli Hurvitz and Israel Makov, we can tell you not to get all worked up over the falls. But since this column doesn’t offer advice, only gossip, please check things out for yourselves. Lumenis isn’t duty bound to say more than it already has, but we haven’t a doubt about what investors want. They’d like to see Frenkel coming out with an unequivocal statement that everything’s just fine.
The above recommendations were made by a person/s working in the investment industry who may hold positions in securities mentioned in the column. This column should not be taken as advice to buy, sell or continue to hold any securities, and anyone acting on the advice of this column does so at his or her own risk.
Published by Israel's Business Arena on 17 February, 2002