If this keeps up I’m going to think I’m in Bizarro World, where everything is backwards. Just like with MicroVision’s announcement of a 140% increase in revenues leading to a 40% drop in the stock (MVIS); GigOptix, now renamed GigPeak for some reason, announced a 25% rise in revenues, and then GIG dropped 7%. This is after it recovered from the previous bit of good news when the revenues were up 23% and the stock went down 25%. Maybe if they lost money the stock would go up? Welcome to the bizarre world of investing in small companies.
GIG is an odd stock. The company’s name continues to change. Even the trading symbol was changed several years ago. It is a paradox of a quietly dynamic, little conglomerate. They’re quiet because their technology is so esoteric that the only people who care are the hardware geeks that make sure the internet runs. They’re dynamic because they have some of the most advanced technology is the industry. They’re little because their market cap is only about $125M. They’re a conglomerate because they continue to grow as much through mergers and acquisitions as from sales. Welcome to a name change that coincides with another acquisition, the increase in revenues, increased profit margins, and increased free cash flow. So, what’s the problem?
I don’t know what the problem is; but, I suspect complexity doesn’t help.
Investing is difficult enough for the big financial firms. Take two companies of similar complexity. Each is a conglomerate. One is worth $100M. One is worth $100B. If you’re a major investor trying to find places to put significant amounts of cash, you’re going to do your due diligence and your homework. While a small company can bring a big percentage return, the amount you can invest is necessarily smaller – unless you want to buy most of the company and deal with the SEC and FTC. A large company has a tougher time growing much larger, but you can invest a million dollars and hardly anyone will notice.
Investing is difficult enough for individual investors. One reason I buy stock in small companies is because they are inherently simpler. My portfolio can be described in overly-simplified terms. AMSC is selling wind turbine technology and superconducting products. Asterias is trying to regrow severed nerves. GERN is trying to conquer cancers and auto-immune ailments by managing the body’s telomerase. MVIS is enabling pico-projectors that can be as ubiquitous as phone cameras. Real Goods Solar is trying (and struggling) to make money in the solar energy field. And. GIG is my investment in high-speed internet services, a service that billions are becoming to depend upon.
And then, GigOptix, oops, GigPeak goes out and buys another company.
Evidently, GIG’s strategy (my apology as I use the stock symbol instead of the company name, but maybe the stock symbol will last longer than the name) – as I was saying, GIG’s strategy seems to be working. They’re making more money. Their advanced technologies make it more difficult to understand their competitive advantage – unless you’re an internet hardware geek. Their finances make it more difficult to understand their true financial situation. Are they dynamic in the midst of controlled chaos, or are they creating a regulatory smoke screen?
I typically wouldn’t buy such a confusing company; but, I found myself owning shares from a spinoff, an IPO, and optimism. For a dozen years I’ve watched their strategy, product line, and finances grow; and yet, it would take a quadrupling of the stock to get me back to profitability. Which I believe is possible. In the last two years they’ve grown revenues 40%. Evidently, that is accelerating. Take away the costs of mergers and acquisitions, and they are becoming a profitable company with a competitive advantage in a growing and vital market. That sounds like a good investment. It quite possibly is.
I continue to believe in the central tenet of my book, Dream. Invest. Live. In today’s America, one of the best ways to live a life of your dreams is to invest if you can. Spend less than you make, which is increasingly more difficult for many. Invest the rest, which involves picking from fewer investment options than before. Low interest rates discourage using savings accounts, cds, and bonds. Real estate is coming back, famously in some places like Seattle, but I suspect few see it as liquid as they did before. Commodities and currencies are as difficult and fickle as ever. Investing in stocks is one of the few options remaining, and there it becomes an issue of trying to avoid competing with the major finance houses and their resources. That leads me back to investing in small companies and buying lottery tickets. Arguments can be made for entrepreneurship, which I am a fan of, but the failure rate is uncomfortably high. (But being an entrepreneur is also amazingly rewarding if you manage to not fall prey to the risks. Check Alan Beckley’s guest posts and his blog.)
GIG announced earnings after the market closed Monday. I didn’t pay attention until Tuesday morning because I have given up trying to predict the short term bizzaro response within the market. The news was good, at least for me. The response was bad, at least for my portfolio. The long term looks encouraging, and maybe after GIG settles down while continuing to significantly grow, then maybe the bizarro nature of the market will flip the other way. Nothing will probably change that until the next quarterly report, so I’ll concentrate on the real world reality of living the life I have. It’s time to hit the deck and enjoy the view.
I searched the market for a company which has good leadership as indicated by their financial status and their stated goals. Gigoptix (gigpeak) may have a virtual monopoly on high speed optical switching in the 100, 200 and 400 gightz range. they are small enough to expand into a small level one player and could get to the p/t somewhere in the mid 30’s in a few years without going through high risk ventures. Technically the people involved are the best of the best in chip design and very forward thinking. I really expect great things are going to be developed at Gigpeak. I invested quite a bit in them to back that statement up.
I agree with your assessment of GIG. After researching the company and it’s industry, along with its financial state, I too have been left scratching my head at the market’s reaction. Because I believe it has a decided advantage in it’s industry, if not an overall niche, I’ve continued to purchase as the price drops.