ive been in the business for the past 21 years and i know how it works..these days mm have almost no affect on liquid stocks..no mkt maker takes a sizable position in any stock, these days are long over since they changed the rules and force them to post 99% of all trades..no mm has the capital to build a position in such a volatile mkt..sure, they can play around a little with stops if theyre close to the mkt price, but the bottom line is that id a stock is strong , they wont be able to keep it from going up and if a stock is weak they want be able to prevent it from going down, also, if a stock goes down and there are real buyers, no mm activity will influence the price for more than a few seconds..the reality is that rdwr is going down because its overvalued, not because mm manipulate it..these guys are laughing everyday when they read how people think theyre so powerful...they have been transformed to being posting clerks with the new rules a few yrs ago..live and learn, we all do..everyday
Okay, let's say mm manipulation is not as powerful as folks out there thought, and RDWR is down due to valuation reasons. Can you provide a solid (NOT a RANDOM number, say, low 20's) analysis to convince folks in this board that RDWR is not worth even 42, but only 30 or 22, etc.
Since you're in the business for 21 yrs, I am willing to trust your analysis, if your analysis is indeed trustworthy.
well, first of all i like the challenge in your question. heres a way to try and get to a reasonable valuation: rdwr's mkt value is about $633mm as of the close today. look at ffiv, its mkt value is about $2660mm (fully diluted) ffiv's sales growth rate as seen in the last qtr released is roughly 4 times rdwr's. since no analyst is basing his valuation on earnings with these companies i contend that rdwr merits only 1/4 of ffiv's mkt cap only based on the sales growth parameter. that makes it about $665mm. lets go further in the analysis, as rdwr is losing money and ffiv is making money already i contend that ffiv deserve a further premium over rdwr, furthermore, since analysts now expect only a 10% increase in sales from 3qtr 1999 to 4thqtr 1999 in rdwr , i contend that that premium should be significant. as any mkt maven will tell u, ffiv deserves further premium just on account of it being a larger cap stock(cant help it, theyre in vogue these days- i dont agree but i never fight the tape). i view a 33% discount as a fair one for these 3 items and thus i arrive at a fair mkt cap of $443mm for rdwr based on these assumptions and facts. that translates to roughly $30/share. now, i truly believe the stock has been hyped dramatically ahead of earnings due to the blockbuster numbers posted by ffiv..everyone expected them to come with a huge number, certainly a profit and they did not. also, all the news about the deals with lucent etc. had been leaked long before the actual releases...all that generated a speculative bubble that burst the day the qtr results were released and has not mended itself yet. the mkt over reacts to the upside and will over react to the upside too, thats why i believe the stock will continue to go down below my percieved fair value of 30...i will be buying more in the mid 20's and low 20's if the mkt(nasdaq) will over correct and flush out the poor shareholders that bought this thing out of pure hype. hope that answers your question