NTAP which reported results recently and gave very soft guidance is an excellent example of the dynamics of the current environment. They missed top line estimates for the Q that just ended and will badly miss top and bottom lines in the current Q, yet the stock is still up (near its 52-wek high) because of financial engineering (stock buyback) vs increasing sales and earnings. To top it off they are going to layoff 900 employees vs the notion that they should be increasing their human and physical capital to justify an increasing value of the business.
In a nut shell, QE money is finding its way into financial markets-liquidity leakage out of bank reserves vs bank reserves being used to make more loans. Coupled with companies using their cash flow for financial engineering (stock buybacks) vs increasing human and physical capital are BOTH conspiring to VAULT stock and bond prices way above their inherent "real" values.
It is a bubble that will not stand the test of time-I have yet to find the right watch to tell that "time".
Despite my overall bearishness, QLGC under $9.50 is a good reward to risk ratio-perhaps $.50-$.75 downside risk for $4.25-$9.50 upside.
With $5.00 cash/share and $1.00/share cashflow, the business sells for 4.5X cashflow with the stock at $9.50. Recent "negative" news of the CEO resigning, could be good news by putting the company in play. Several activist groups, Elliot being one, specialize in cash rich tech companies-so over the next few weeks, I am expecting one or more 5%+ positions to be reported to get the process started.
On a fundamental basis, the business is expected to earn $.70/share for the FY that starts this Q or about 6.5 PE-cheap historically and absolutely. Potential sales catalysts are faster adoption of INTC's latest server chip upgrade cycle and QLGC's success with its Ranier family of products.
Good observation on QLCC commandor. I've bought some shares at $9.33 with an RSI of 29. I agree the PPS may still show some weakness as the 50 DMA is breaking down through the 200 day line. Some near term weakness may follow but there is no denying the value here. I will complete my position if she reaches 9 or less.