Please read carefully our disclaimers at the end of this newsletter. Market Stance: BEARISH (since August 10, 2005)Contents
Year-To-Date Performance
* An average of managed accounts, net after commissions and fees. Individual account results may vary. See also www.deencapital.com/perform.htm. For information on managed accounts, see www.deencapital.com/mgdaccts.htm. Bought Neoware Systems Inc. (NWRE)
* The "Net buy price" is the total net purchase cost after commissions for all managed accounts divided by the total number of shares. Today, Friday, September 2, 2005, I bought NWRE, first for client accounts, then for my personal accounts. Neoware Systems, Inc. provides software and solutions to enable appliance computing, an Internet-based computing architecture. The Company's software and management tools power and manage smart computing appliances to create alternatives to personal computers. Here's why I bought this stock: + Yes, I am still bearish, but my technical indicators are improving, and, as I write this, are neutral on balance. Also, this is an unusually strong buy. The volatility of managed accounts is creeping up with these new buys this week, but still remains just slightly below the S&P 500, by my statistical measurement. + Outstanding Earnings Surprise: Yesterday, after the close, the company announced results for the quarter ended June 30. Earnings came in at 18c vs 10c a year ago on a non-GAAP basis; GAAP earnings were 14c vs 3c. The First Call consensus called for 12c. I'm not sure which reported number should be compared to the estimate, but, either way, it's a significant upside surprise. Revenue was up 35% to $23.0 million (First Call $21.7 million). The company also raised its guidance. They now expect fiscal 2006 (ends June 30, 2006) revenue to increase "by approximately 30% or higher, compared to the prior fiscal year". This translates into $102.4 million or better, versus the First Call consensus of $97.2 million. + A "true surprise"*: For the past month and a half, the stock has been trending lower. Yesterday, the stock closed at its lowest price since July 5. Then, this morning, the stock is soaring on extremely heavy volume. We're less than halfway through today's regular trading session, volume is already 25x average. This is very rare, a volume spike of this magnitude. * "True surprise" is my term to describe a company news item that ignites heavy buying and that was not preceded by a short-term run-up in the stock price (i.e. not preceded by rumor). + Breakout: The price movement today represents a breakout from a six-month trading range. + Today, the stock is on track to meet the stringent technical buy criteria outlined in my Research Update of June 26, 2004: http://www.deencapital.com/newslett/2004/040626.129.html#3 . + Excellent recent sales growth: Here are the quarterly year-to-year sales growth rates from the last four quarters, in chronological order: +9%, +34%, +21%, and, most recently, as cited above, +35%. + Three quarters of excellent recent earnings-per-share growth: Here are the quarterly EPS figures for the last eight quarters: Sep 04 vs Sep 03: 9c vs 12c Dec 04 vs Dec 03: 13c vs 9c Mar 05 vs Mar 04: 11c vs 8c Jun 05 vs Jun 04: 14c vs 10c + Strong estimates: According to recent data from First Call, the consensus earnings estimate for this fiscal year (FY 06, ends June 30) is 54c, unchanged from 90 days ago, and up from FY 05 actual earnings of 46c. This estimate pre-dates the news cited above, and I would expect it to be revised higher in the wake of the company's new and surprisingly strong outlook. For FY 07, I see a new estimate of 62c, which I believe also pre-dates yesterday's surprise. + Valuation: At 21 times next year's estimated earnings and a projected 5-year annualized earnings growth rate of 20%, the stock is attractively priced. + History of earnings surprises: This company has reported earnings at least a penny ahead of estimates in each of the past five quarters (including the just-reported quarter cited above). + The company's industry group ("Computer Manufacturers") is ranked #52 for relative strength out of 197 industry groups tracked by Investor's Business Daily. This ranking changes daily, and it has been generally rising over recent weeks and months. -KD, September 2, 2005
* Net buy prices shown are the total net purchase cost after commissions for all managed accounts divided by the total number of shares. ** Current prices are at least 20 minutes old. Welcome to The Deen's ListTM, an e-mail stock newsletter from Deen Capital Management, Inc. My intention is to inform you as quickly as is practical regarding my stock market moves. When I buy or sell a stock, first I take care of client accounts, then I buy/sell for my personal account(s), and then, third, I send out this newsletter. Your feedback is welcome. Send e-mail to deenslist@deencapital.com. To subscribe or unsubscribe, include the word "subscribe" or "unsubscribe" in the Subject line. This newsletter is free to managed account clients. For a limited time, it is also free to all interested parties. Your personal information, including your e-mail address, will be held in strict confidence by Deen Capital Management, Inc. We will not share it with or sell it to others. All stocks discussed in The Deen's ListTM involve a high degree of risk. It should not be assumed that any stock discussed in The Deen's ListTM or purchased by Deen Capital Management, Inc. will be profitable. Past performance is not necessarily indicative of future results. The information contained herein has been compiled from sources deemed to be reliable; however, we are not responsible for its accuracy or completeness.
Ken Deen Copyright © 2005 Deen Capital Management, Inc. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||