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Red Hat, Inc. Message Board

  • sambordulac sambordulac Jul 9, 2003 10:11 AM Flag

    Cease fire

    Hi, B & C,

    Other than the nit picking words, I am sure you both understand each other's opinions and the sources of them. I am sure others on this board did too. So why don't we move on to other area of interest? Like weather or something.

    And, PLEASE. Do not repeat same conclusions over and over. If it didn't go through our skull the first time, it probably never will. Why bother?

    The options will serve as a drag. Now what you do with your holding depends on the future you see in this company in spite of the options. Right?

    My best regards to both of you,

    Sam by the lake

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    • 1. True, if there were a big downturn in US outplacement, it would be hard for the rest of RHT to grow enough to replace those profits. However, there already has been a moderate downturn in US outplacement business--same store sales in that operation were down about 10% in Q1, and the company still managed to grow nicely.

      Keep in mind that there were mass layoffs in 2001 into early 2002 from the stock market bubble collapsing, followed by 9/11 dislocations. That has made positive comparisons hard to achieve in the last few quarters.

      But a strong economy doesn't necessarily mean bad business for US outplacement. Unemployment peaked in the US in the spring of 1991, but RHT's numbers rose nicely for the next five years, even as the economy expanded. RHT benefits from a healthy M&A climate, something that is just starting to appear again in the last month or so, after being non-existent for the last two years. Only in the bubble phase of the late 1990's, when companies hoarded employees, did RHT suffer a big downturn in outplacement.

      2. Investors only look over a valley if they can sense the bottom. If all the tax and interest cuts turn out not to be able to get the economy rolling later this year (perhaps because of excessive debt, a weak dollar, an end to the real estate bubble, or other reasons), will investors still be confidently looking over the valley? Will they still have faith in the Fed and the Government to run the economy? I doubt it. And if that happens, there are going to be very few companies in the world that would benefit from that--RHT is one of them.

      3. I wouldn't expect anyone to come in out of the blue and offer a 100% premium to the current price for RHT. If the stock gets back to $18 on its own (only 10 P/E if it achieves its earnings goal this year), it only takes a 33% premium for someone to buy it at a double of the current price. If short term rates remain very low, any company with excess cash could pay $24 for RHT and have its EPS rise.

    • The odds of one of your macro scenarios happening is great, but how that results in an RHT double is not clear.

      1. The non-placement business is very small in relation to the out-placement segment and will hardly offset a big downturn in the main business, even if your overseas scenario is thrown in.

      2.Even if the U.S. heads back down, the market will be looking over the valley to the recovery, much as they were last year and not give RHT any kind of p/e boost.
      Besides, if your non-outplacement point in #1 is true, the resulting drop-off in that segment would offset it.

      3.Hoping for a buyout is a long-shot. And even if it happens, what company would pay the double that you are hoping for?

    • Squidcake: "The chances of RHT enjoying a similar bubble-ride any time soon are thin."

      And I'm not predicting any such thing. But the stock is so cheap that it can still double quite easily over the next year. That would require at least one of these to be the case:

      1. RHT shows that, despite a stronger US economy, it can continue to grow earnings because of growth in its non-outplacement operations, and secular growth even in outplacement overseas, where many countries are being dragged by reality into US/UK style labor flexibility policies. Or,

      2. Despite tax cuts and a liberal fed, the economy unexpectedly heads south later this year, leading to growth in the US outplacement business again. Or,

      3. A bigger company sees an opportunity to make their own operations less cyclical, and buys out RHT.

      I certainly don't know for sure that any of these will happen, but I think there are pretty good odds that at least one of them will.

    • Seems that SEIB went up like it did, overcoming the options issues, because of the once-in-a-lifetime tech bubble.
      The chances of RHT enjoying a similar bubble-ride any time soon are thin.

    • "Sorry, SEBL was your example."

      Statements like this make me wonder about your sanity. It first showed up here in YOUR post #1666. No, I don't really wonder about your sanity. It is pretty obvious you have problems in that area.

      "Yep, they abused options. Yep, their share price went up."

      But wait! You said that couldn't possibly happen, because the employees would all exercise their shares and smash the stock down. Yet the stock went from $8 to $120 despite options issuance that would make RHT look like it was run by Warren Buffett by comparison. So if SEBL could do that in 1999-2000, and RHT did something similar in 2001, then I guess RHT is perfectly capable of going up in 2003-04, isn't it?

      "RHT's stock is pitifully cheap on a PE basis. For reasons that the market now knows ... abuse of options and grossly overcompensated executives."

      Funny that not a single analyst covering the company, none of whom are remotely bullish, mention that reason. They argue, in effect, that the natural state of the US economy is "boom", that the recent recession that helped RHT's outplacement segment was an aberration, and that RHT's earnings will soon be dropping. The fact that deferred revenues (similar to backlog) on RHT's balance sheet have been steadily declining in recent quarters is the main piece of evidence they cite. That is why they don't like the stock.

      Let me guess. Even though you are so addled that you even forget what you have written, you are actually blessed with psychic powers and an expert mind reader. The analysts all SAY they are being bearish because of what they think RHT's earnings outlook is, but the voices in your head tell you that they are REALLY bearish because the company gave out too many options in the 1990's. That's next from you, right?

      Look, I'm sorry you lost money on RHT. That's what happens when you buy stocks after they have gone up five times in a little more than a year, without doing the most basic research, as you admitted.

      The high executive pay and hefty option total was there at the beginning of RHT's run, and was still there when it topped out (although actually, option issuance plummeted after 2000 at the company.) Your losses were caused entirely by your own poor investment abilities, not anything that RHT did or did not do while you owned it.

      As the old slogan goes, "investigate before you invest". Take responsibility for your decisions, and don't try to blame others for your errors. If you aren't willing to do those things, you don't belong in the market.

    • Sorry, SEBL was your example. Yep, they abused options. Yep, their share price went up. Yep, the market can be irrational over short and intermediate periods of time. But the market eventually gets it right.

      The market has RHT nailed. RHT's stock is pitifully cheap on a PE basis. For reasons that the market now knows ... abuse of options and grossly overcompensated executives.

      You picked a good example. Let's see if RHT follows in SEBL's footsteps over the next couple years and winds up fighting with it's shareholders in the courts.

      Have a nice weekend. I'm off to go jet skiing.

    • You are trying to weasel away from your unsupportable claims again.

      The assertion of yours, that I have refuted, is that the existance of too many options outstanding will prevent a stock from going up. The stock you wanted to use as an example, SEBL, at the end of 1998 was a vastly worse offender in terms of option issuance than your worst fantasies about RHT. Nevertheless it managed to go from around $8 to about $120 in less than two years. Anyone reading the 1998 10-K would have known about the options, and obviously, it didn't bother them too much, did it?

      Then later the stock went down. Then after that those who lost money when it went down, not willing to blame themselves for bad investment judgment, sued the company, claiming, among other things, that the directors improperly issued themselves "thousands" (note: not "millions", just "thousands") of options, at a company with nearly a half billion shares outstanding.

      Maybe SEBL was badly managed--beats me, I don't follow the company. But who cares? What happened to SEBL after it went to $120 has NOTHING to do with the issue at hand.

      Despite cpa38's idiotic theory, massive option issuance didn't stop SEBL from going up more than ten times in 1999 and 2000. Having lots of options didn't stop RHT from going up many times in 2001. And it won't stop RHT from going up quite a bit again, if the company shows it can continue to perform well even in a soft US outplacement market.

      Case closed.

    • You stepped in it:

      09:07 ET JMP maintains Underperform on Siebel Systems; target $6 (SEBL) 10.03: JMP Securities maintains their Mkt Underperform rating and $6 target on SEBL; yesterday the Superior Court in San Mateo County cleared the way for a lawsuit brought by the Teachers' Retirement System of Louisiana (TRSL) to proceed to trial on Nov 3; firm says their understanding is that this lawsuit has 2 primary causes: 1) TRSL claims that SEBL directors breached their fiduciary duty to the stockholders by authorizing excessive compensation for Mr. Siebel, and 2) TRSL alleges that thousands of directors' stock options were issued in 1999 and 2000, but were concealed from stockholders. Firm believes the trial is likely to add to SEBL's legal expenses, result in further depositions and interrogatories that could distract mgmt and board members, and reinforce the perception that SEBL must improve its corporate governance.

    • I love the way you keep bringing up examples that prove yourself wrong. Here is another.

      "show me a tech company with options o/s > 20% of shares o/s that "zoomed" in value... FEW issue 20% or greater. Very few. And those that have .... like SEBL ... fell flat on their ass when shareholders finally woke up to the dilutive effect of stock options."

      OK, lets look at SEBL. At the end of 1998, it had issued options equal to 43% of its shares outstanding, a figure about twice that of the offending RHT today. Moreover, it was issuing them very aggressively--its earnings in 1998 would have fallen 47% had it expensed the options it issued that year (for comparison, RHT's earnings would have been only 7% less last year had it expensed the options it issued).

      So according to the cpa38's "Iron Law of Lotsa Options Preventing the Stock from Ever Rising, No Matter What", SEBL stock should have been stuck in the mud thereafter. Well, guess what? SEBL, which finished up 1998 at $8.48, managed to rally up to $119.87. Not too shabby, for a company with lotsa options, eh?

      Ahhh, but I see cpa38's excuse: Even though SEBL had way too many options in 1998, investors were victims of a magic spell by an evil witch, and didn't know that (even though it was right in the 10-K) until the end of 2000, when an enchanted prince kissed them, and they "woke up to the dilutive effect of stock options", and then sold.

      To recall, RHT had plenty of options outstanding at the end of 2000, yet it managed to be a five bagger in the next year and a half. Then poor cpa38 bought it, and it went down, and the reason was all the options that it had issued years earlier, that he could have seen if he had read the 10-K. The fact that RHT cut sharply on option issuance in 2001 and 2002 to below average levels didn't make any difference, it was the ones they issued several years earlier that lost poor cpa38 his money. Uh-huh.

      Again I suggest, cpa38, that your problem is one best dealt with by a therapist, or at least a policy of reading the material on a company before investing.

      Once again I remind you that I am not defending the level of options RHT issued in the late 1990's, which were high. (Although recall the time period--it was the bubble, and employees could make a lot more money placing executives than doing outplacement, so incentives were needed. This was hardly the crime of the century.) It is a negative. But that is all it is, just one more factor to consider. It didn't stop the stock going up in the past, and it won't in the future, if the corporate performance is there.

    • So, RHT options are reasonable you say? You brought up tech. Let's take a look at RHT in comparison to the four horsemen of tech ... DELL, MSFT, INTC, CSCO. How do you think RHT stacks up?

      If you go back to the earliest time possible and track stock prices in Yahoo historical quotes, you can track RHT back to Oct '93. From October 1993 until today the mgt of RHT have delivered a 5.0x return to it's shareholders. Sounds impressive, eh? Maybe. For this they award themselves over 19% of the company stock in options. Reasonable?

      Over that same timeframe:

      INTC - has delivered a 6.1x return to it's shareholders ... but has 51.3% fewer options outstanding than RHT.

      MSFT - a 10.9x return ... but has 25.8% fewer options.

      CSCO - a 13.9x return ... but has 17.8% fewer options.

      DELL - a whopping 103.7x return ... but has 34.8% fewer options.

      Gee, and these superior tech companies don't match 401 K with 37.5% or deferred comp with 37.5%. I don't even think the CEOs of these billion dollar companies pay themselves as well as the RHT executives.

      Bibbicif - if it isn't clear to you now that these guys are pulling one over on their shareholders ... well, then you need to go back to elementary school.

      THIS COMPANY HAS NO BUSINESS BEING A PUBLIC COMPANY. THEY EXIST FOR A SINGLE PURPOSE ... TO LINE THE POCKETS OF THE EXECUTIVES. If they want to steal, let them buy out the shareholders and then they can do as they please. This company needs to be taken private.

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