Palm's Stock Drops Like a Rock

Posted By: Ed Friday, December 22, 2000 8:42:08 AM

In just two days, Palm's stock has lost over 40% of its value. It closed Tuesday at $43.62 but finished the day Thursday down $18 to $25.63. This is despite just reporting a stellar quarter and a large majority of analysts rating the stock at "Buy" and a few at "Strong Buy".

The drop has Palm's CEO befuddled. "It's a strange situation," Carl Yankowski said Thursday. "Wall Street apparently expected a [negative] surprise. You're selling all you can make.... [We're] in a hot category and holiday season sales have been strong. " He remains optimistic about the future, saying, "We'll just power through."

The stock is not without its critics, though. Todd P. Bernier from Morningstar said, "The stock trades at roughly 10 times annual sales, based on management's estimates, and 255 times First Call earnings estimates for the current fiscal year. Unless Palm's valuation multiple expands from the current lofty levels, we believe that the downside in the stock outweighs the potential benefits."

One area of concern is the small amount of profit Palm makes on each sale. "Handspring's Visor and products based on Microsoft's PocketPC platform partly led to a 12% quarterly decline in Palm's average selling price," Mr. Bernier said. "As a result, gross margins continued their steady erosion, falling more than two percentage points in the quarter. "

Not everyone buys into this gloom and doom. "I don't think it's Palm specific,'' said Sanford Bernstein and Co. analyst Paul Sagawa about the recent devaluation. "I think it's much more indicative of the general sentiment of high-valued stocks and the general downdraft on tech issues on the Nasdaq.''

Palm's stock, and the stocks of other handheld makers like Handspring, is possibly overvalued because many expected big things to happen in the handheld industry very quickly. "The analysts are overly optimistic in their expectations," said John Hock, chief investment officer at Altrinsic Global Advisors. They're going to realize that the big growth rates are way down the road."

Article Comments

 (5 comments)

The following comments are owned by whoever posted them. PalmInfocenter is not responsible for them in any way.
Please Login or register here to add your comments.

Comments Closed Comments Closed
This article is no longer accepting new comments.

Down

BUY

I.M. Anonymous @ 12/22/2000 7:59:50 PM #
BUY BUY BUY BUY BUY BUY BUY BUY BUY

Thank you


t'is the season to get greedy..fa la la la la a fa...!

I.M. Anonymous @ 12/23/2000 8:21:37 AM #
Picture if you will the scene from 'trading places'
it's christmas time and end of year is comming
around, you've made a tidy sum, this year but
your boss is on you to perform perform...'perform' for the annual report... hmmm, I've have a lot in Palm maybe I should sell and show a little more profit this quarter.

or as Eddy Murphy put it, 'Your kid wants the doll, with the Kung fu grip, and your wife won't ____ you if
you don't bring home some major cash..' or somthing like that....

Ian.


It's still extremelly overpriced.

I.M. Anonymous @ 12/23/2000 1:46:06 PM #
And it will go down a lot more in the next few years unless Palm can continue having huge sales gains and flawless quarters. Currently they have a P/E ratio of 295. Only internet companies and Juniper Networks are more overpriced.

Drop like a Rock

I.M. Anonymous @ 12/24/2000 7:52:28 PM #
I see this Palm Vx that I use every day of my life and wonder. How could a stock change so quickly when there are so many neat little programs to use-when this Palm device is so fun to use.. I have used this device going on three years and I STILL have not gotten into some of the meat of the software. IT JUST DOESN'T MAKE SENSE!! I keep waiting for the day that I will not want to use my PVx. I could not image a day without using a Palm Powered device. When I first started using my Palm III device the only emotion I continually would feel would be anger against Microsoft for not making a platform that was not like the Palm. That anger is present again against the buttholes who give advice to sell PALM Stock.

RE: Good Company - Overvalued Stock.
I.M. Anonymous @ 12/24/2000 10:08:59 PM #
Would you pay $5000 for a Palm Vx? Why not? How do you put a value on a PDA?

How do you put a value on a stock? Traditionally earnings, dividends, as well as the potential for growth.

If palm sold a Vx to the entire population of the world they probably wouldn't make enough to achieve a quarter with a 15x P/E at their old high - 15 P/E the historical average.

It's a bubble which is imploding. NTT went to similar valuations in 1989 on the NIKKEI. It is still around but not trading out for quite that much.

RCA was high tech in the late '20s. It's still around but had a palm-like P/E. After the '29 crash I think it was the 50s or 60s before it recovered to the pre-crash value. And it was a much bigger company at that time, so it was actually worth the stock price.

Many other companies had no earnings and even larger market caps. But in a mania everything gets bid up. Facade companies to the stratosphere, but even real companies are bid up to silly levels. And during a downturn they often go below book value. But that is the market.

Don't mistake the stock price with the solidity of a company.

Top

Account

Register Register | Login Log in
user:
pass: