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August 14, 2009
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Ok, let's take the one and only perceived negative first. After STEC reported great earnings and excellent future guidance and a conference call full of goodies, it announced a bombshell. The CEO and COO, both brothers who own the majority stock, planned a secondary offering of selling a large amount of their own STEC stock. It turned out to be 9 million shares, which brought their holding of STEC from 34% down to 20%.
Now when the street heard this, the expectation was that STEC had something to hid, had hyped up the stock, and bluffed the stockholders. The shorts were going ga ga. The brothers were going to clean up and leave their stockholders holding the bag.
But, as you might know, something funny happened on the way to the bank.
When I wrote my Aug 2, the stock had closed that previous Friday at 34.09. Well, where's it today? .. after the close on Aug 13? How about 36.58.
Now, to be truthful, it did tank.
It slid quickly to a low of 28.90. Those NOT in the know, sold out. Panic and fear their best friends (or worst enemies). Myself, a holder of STEC bought more at 31.00. All along, I made much commentary here on PP about keeping the faith on STEC. There was much discussion, I suggested to refrain from discussing STEC for about a week. Well, that week is up.
Now, I can write about how great STEC is as a company or a stock and why I love this stock but I've already done that in the previous blog. I can tell you what the press has said since the bombsell announcements. How Business Week and Baron's have written positive articles about STEC in the last week. . I could tell you about the analysts that have up'd their recommendations and buy ratings on STEC. I could tell you about the mulitude of STEC annoucements about new leading features on their products which no one else has. I could tell you about how much debt STEC has (it has zero debt), I could tell you about capitalization (it's loaded with cash), I can tell you how management moved overseas to save on tax and lower their costs on production. I could tell you about the monopoly STEC has on their enterprise product. I could tell you about their major new orders from the US government and from players such as IBM and EMC. I could tell you why their product market isn't even close to saturation, I could tell you about the huge margins STEC gets on their products...but hell I'd have to write a book to do.
Ok, how about it's P/E. According to a respected website
//moneycentral.msn.com/investor/research/wizards/SRWTarget.asp?Symbol=stec
moneycentral sees stock. using the sector's normal p/e, at 52 at end of 2009 and 74 at end of 2010. Given high end (now even I don't beleive this) , 108 at end of 2009 and 154 at end of 2010.
Bottom line : Stock is on fundamental fire and from a technical standpoint, at a breakout.
But now... back to the original negative..the insider selling.
"Why would the Moshayedi brothers abandoned a structured 10b-5 sell plan, then opt to liquidate 9 million shares @ $31 bucks. They know the future for STEC is very promising and the stock price is undervalued at this time. WHY, WHY, WHY? Something is up besides the stock price. Would it make any sense to do this if a buyout was around the corner? "
Well, who knows? Why did Bill Gates sell all but 20% of Microsoft when he was CEO? Why did the ceo of Google sell some of his shares a few months after the IPO? Is Goggle still around ? Ha ha .
Some of speculated that the tax laws will be changing and the 15% rule will no longer apply. Well, 260 million is a lot of cash, the brothers might have another private investment in mind.
Is the stock worth buying today? I'd say we have a long way to go in this movement. What happens when companies have a lot of cash and no debt and a current monopoly in their major profit product line and demand for the product and no saturation in the market place? Do you think someone might want it ??????????????
What others are saying about STEC, Here are some links:
Stock of the Month .
www.smallcapinvestor.com/stockresearch/stockstowatch/2009-08-13-stec_stec_flash_profits
STEC SSD's made cheaper:
www.enterprisestorageforum.com/technology/news/article.php/3834296
STEC goes on ....rampage
www.theregister.co.uk/2009/08/12/stec_range_extension/
Massive amounts of announcments. Four press releases in a row
STEC website:
www.stec-inc.com.
STEC Unveils SSDs With Enhanced Reliability, Lower Cost
http://www.crn.com/storage/219200282
STEC stunning growth: I cannot remember seeing a company grow earnings this fast
http://seekingalpha.com/article/155007-stec-s-stunning-growth
SSDs move into a class of their own
http://www.edn.com/article/CA6675821.html
A Driving Force in Solid-State Drives:STEC (STEC)
Business Week, Aug 6 issue
