When a company reports numbers that look good but trades down hard you look to the guidance. In this case guidance was ok so you look to comments in the call. The inventory issue is potentially a MAJOR issue. Lots of times when companies have problems the first hint is an inventory issue so I think there is cause for concern. I also see a serious red flag with the operating cash flow, but it's due to a very large increase in accounts receivable... which is a classic way to play games with your numbers. This looks like a huge red flag to me (but I say that after glancing at the statements for 3 minutes so it's not a deep analysis.)
I'm absolutely not an expert in the sector but I do think there are basically little or no barriers to entry. Bigger competitors could eat their lunch pretty easily.
However... in my mind none of that matters because all that matters is what the market is telling you. When a stock gets hit hard on earnings it usually continues to go down for a while. The right answer to what to do here is personal and depends on your risk tolerance and timeframe... but "holding on and hoping" is rarely a good idea. To my eye, it's a badly broken chart and any bounce is a sell. I don't see any real support until below 15... and 10 looks like a good downside target. Chartwise it's a short to me.
This stock has something like over 45% of the float held short last time I checked. That is very high. Two thoughts: 1) stocks with high short interest are vulnerable to short squeezes, erratic bounces and hard pops and 2) statistically speaking, stocks with high short interest tend to go down.
The chart, the short interest, the inventory issue, the ballooning receivables and the reaction to earnings make this a screaming short for me, but I'm also wrong a lot. if we get a good bounce in the market sometimes things like this can go up harder than you'd imagine but i would encourage you to at least lighten your position at some point.
(I should also mention that I dont make trading decisions based on the most of the criteria in this post, but I do know how to play the "analysis game" lol)
Quote from Bulldog Daddy:
1. HGSI made even more money today!
2. Stock can be tricky. I looked at a stock which is trading at higher volume in after hours. It closed at around 23, and earned 0.47, but is trading at 15 to 16 range.
I tried to buy some shares at 15.17, and by the time I made the order it ran away from me. Within 2 minutes it went to 15.80 area. I missed it, even though I tried buying at ask.
Oh yes, stocks can be tricky. I still feel OK closing out HGSI at 25. But today I was in investor seminars at Schwab all day. Got home just in time to tune into the 4:30 est. conference call with STEC. By then, the quarterly summary was out, and if I had been home earlier and read it, I would have felt pretty good.
Imagine my surprise then, when I checked STEC's price in early after hours and saw that it had plunged 30%! It had closed at 23.15, and by end of after-hours, it stands at $15.76, with 12MM shs traded after hours. (50 day avg vol is 5MM.)
So today at Schwab I took a step forward in reading charts. As best I can tell (hope) there's support at around 15. Also, I just re-read financial results, and I think they are very good. So here's what I think:
1) STEC is cutting edge new tech, so it is very volatile. Even a whisper of doubt about prospective sell-through or inventory back-up sends it tumbling.
2) STEC is a smallish company with an unproven marketing effort, nothwithstanding superior technical quality (and damn good operating results, too). But small and unproven gets "investors" jittery.
3) There's buzz about pending competition in a market STEC was thought to have all to itself. But my reading of those factors says that ramping up to go against STEC in such a highly specialized market (they make ultra high end solid state drives ((SSD)) used for crucial storage by the big record storage cos. - EMC, IBM, Hitachi, Sun etc.) is not so easy. Competing tech, ISO approval, customer acceptance, etc. are a steep hill to climb. But the cost effectiveness of SSD in general needs to be sold by STEC's marketing efforts.
4) With only a 31MM float, STEC is easily manipulated by bear gangs who want to short you right out of your pants, and then re-buy and enjoy the ride back up.
So what do I do? I hang on, for about another two quarters, I think. What does anyone else think? Me, the dogs are both snoring, and I'm going to bed. [/B][/QUOTE]
