3SOF

Quote from: JKN on December 20, 2006, 10:53:50 AM
BTW, great call David, my applause !! (after the one hour requisite since the SYX applause)

In at 5.63, holding according to the plan...

Merry Christmas to you and your family from Vicksburg, MS, USA.

Thanks a lot JKN, Merry Christmas to you and your family from Ericeira, Portugal

Ok, today we have a chance to deal with GOAM. But before that, just one more little issue on the "short term vs long term" controversy, all right?

Let's take GOAM as an example. You may think "the stock made its move, ok, it may go somewhat higher from here over the medium/long term, but what do I care, I already have a 60 - 70% profit, why should I wait, shouldn't I just look for another short term powerful horse to ride?"

I think simple mathematics answers this question. From now on, each time GOAM rises $5.85, that means I have doubled my initial investment. If/when the stock trades at $11.70 I'll have a paper profit of 100%. But at $17.55 I'll have 200%. And at $23.4 I would have 300%. At $29.25 I would have 400% ... and on, and on. Of course, this is basic. For the person that buys at $11.70, at $17.55, instead of another double, it will have just a 50% profit. For the one buying at $17.55, when/if the stock goes to $23.4, instead of another double as in my case, he'll be making just 33%. And the guy that buys at $23.4, even when the stock trades at $29.25 (which means another double for me) will only be 25% ahead on his money.

All this sounds so basic, but underneath I think there's the little secret that makes longer term strategies beat short term trading by far. While short term traders keep on fighting for those highly unpredictable and small percentage profits, the long term trader, with the same moves on the stock, is making a lot more money. After a big rise, the same $5 will mean another 100% for the long term trader and just 25% for the short term trader.

I think the man that took this idea beyond everybody else is also the most successful investor ever, Warren Buffet. I believe this is why he focuses so much on long term capital appreciation, because of this compounding effect.

But, and this is a big but, which stocks are set to appreciate several bags going forward, so we can take advantage of this compounding effect? It's hard to know, but one thing is certain, one needs to study the fundamentals of the company and its sector. Just technical analysis won't be enough.

Since we're on GOAM's thread, let me try to explain in a very simple way why I think GOAM will offer this golden possibility of compounding profits:

1) The company has a market cap of $23.63 M;
2) Its total market, given by the FCC Telecommunications Relay Fund size in 2007 will be about $550 M;
3) The company's services are better than those from the competition. GOAM's market share of the IP Relay service went up from 5% in Q1 to 12.5% in Q3. GOAM's VRS seems to work much better than those from the competition, as you can read here: http://www.i711.com/vrs/comparison.php
4) If the company is able to get a market share of 20% in 2007 (as I think it will, possibly more), total 2007 revenues will be about $110 M. Apply a revenue multiple of 1 and get a $44.7 price per share, next year. But, what if they get just 10% of market share? Well, then we're looking at a $55 M market cap, and a price per share of $22.34. Even in this worst case scenario (since they already had 12.5% of the IPRS market in Q3), I'll make 4 times my money.

I expect these scenarios to take time to unfold, because the market is skeptic and wants to see the actual numbers (and we haven't discussed profits yet, I don't think we have a base for that at this point), but I can't trade this sure thing for some irrational short term investment out there.

I'm not that young anymore, that is, I need to be what I always wanted to be, a speculator, not a gambler.

I read the report of the meetings minutes that buddjas posted I have to make this quick, I have somewhere I got to be.  While it says the total amount funded is 1.4% above TOTAL costs. That is based on everybodys total estimated costs so if GOAM has a 30% profit margin, they still get the same rate $1.22/$6.64. They don't care what each individual company's costs they add it altogether. If one company has a 30% percent margin and another has a 5% margin they still get the same $1.22/$6.64 rate.

Please excuse my rambling and the numbers I used are just used to show GOAM can make huge profits., I don't have time to research right now

"While it says the total amount funded is 1.4% above TOTAL costs. That is based on everybodys total estimated costs so if GOAM has a 30% profit margin, they still get the same rate $1.22/$6.64. They don't care what each individual company's costs they add it altogether. If one company has a 30% percent margin and another has a 5% margin they still get the same $1.22/$6.64 rate."

I think you are missing my point.  The lower GOAM's costs are in year 1, the lower the numerator is in year 2 for the reimbursement rate (because GOAM's costs make up a percentage of the total industry costs).  GOAM's success in year 1 hurts GOAM in year 2.  GOAM's profit margin will continue to decrease as the reimbursement rate is recalculated year to year.

Don't get me wrong, GOAM should be able to pull a profit from the current reimbursement rate, until that rate is recalculated.  Successive years, though, I question. 

Buddjas1, you're not letting me sleep man. I already wrote three answers to your concern ... but, they don't convince me

So, FCC has a cake to distribute between 8 operators. That cake's size equals the total cost of those 8 operators plus 1.4% for short term working capital purposes. So the industry's profit is $0.

I remember my microeconomics classes about ten years ago that said that in perfect competitive markets, over the long term all industries profits are zero. Because if an industry has positive returns, that will attract more players to it until the combined profit margin is zero. And if the industry has negative returns, more and more companies will shut its doors or leave the industry, until the few players left have a net profit margin of 0% again.

So buddjas1 concern applies to all industries that have a positive return. It is a very long term concern.

But on GOAM's case, the future seems much closer. Buddjas1 is seeing beyond the next two or three quarters and sees $0 profits. How much is worth a company with, say, $100 M in revenues and $0 profits? Certainly not zero, because it still pays it's production costs, taxes and many other things. For society, it is a valuable company. But for shareholders ... nah, it's not worth it !

I still see GOAM making nice EPS numbers in the next one to three quarters (being a new player, with a very fast growing market share, it will benefit from a market inefficiency, but valuation is build upon long term prospects. How can you value a company at 10 or 15 times earnings if you know that one or two years from now probably earnings will be something like zero?)

Buddjas1 analysis is overwhelming. My long term bullish case on GOAM was destroyed. I have a 63.54% paper profit. I'll take it tomorrow.

Will keep on searching for some other attractive long term plays.

The trading plan for GOAM is to SELL it between $9.2 and $10.

For what it is worth, Anytime the government supports/pays for anything that is for the medically or physically challenged person, they will always re-evaluate pay structure each fiscal year at the state level and usually every 3-4 years at the federal level.  I am a Physical Therapist that was self employed for 14 years and when re-imbursement rates change, (whether it is Medicare or Medicaid) the providers (hospitals, labs, doctors, therapist, clinics, etc..) always make a profit in the end.  You just learn how to play the game more efficiently.  For the last 3 years, I have worked for a homecare agency called Amedisy(AMED) that provides nursing and therapy services, and even though Medicare (primary payment source) has cut payment in 1/2 (yes I said in 1/2) since the passing of the balance budget act in 1997,  Amedisys has grown from 50 homecare agencies to 251 homecare agencies in 18 states and Rev/profits have grown exponentially to currently support a $714 Million market cap with a PE of 20.  So this debate is not what it seems when you scratch the surface.  I believe GOAM has a bright future, but I can also understand taking a 63% profit also.  Good Luck to everyone!

David,

I just wanted to chime in here, and ask you to have another look at the document that buddjas posted and also re-read the thread and everything you said about buying and holding. I really don't believe that this issue changes anything about the situation with GOAM.  The main issue here is to look at the market they are in and the other market players.  As you mentioned previously, most of the other players are the big telcos, like AT&T etc.  Is it not likely that they would have a substantially larger cost structure than a small, focused company like GOAM?  The point being that the large telcos have to provide the service as part of their overall service provision - they do not want to be seen as not providing a needed service to people with hearing disabilities.  Hence, they accept that they must provide this service for around break-even, or at a slight loss.  GOAM is a small, opportunistic company, that specializes in this marketplace, and sees that it can add value to the service, and presumably do it cheaper than the big boys.  They wouldn't be doing it otherwise.  They will never take the whole pie, but as you mentioned several times in this thread, even a relatively small piece of the pie represents significant revenues (and revenue growth) for this small compay.

And while it is true that if GOAM grows its rate of IPR and VRS users substantiually, its costs to provide the service will have an increasing weight, but it is unlikely they will grow their proportion of the market beyond 20-30% in the medium term, so provided their total costs are less than their competition, they are making money.  Finally, note in the document, that NECA's accepted prices were actually several percentage points above the projected costs projected for each service, to allow for marketing and other expenses - it appears that the providers do have some leeway to work with them.

This paragraph suggests that some operators do have vastly different costs associated with the service (although it also notes that this was accommodated for in their calculation):

QuoteFirst, with respect to the indirect costs, NECA determined that one provider's indirect expenses were, on a relative basis, significantly higher than those of the other providers.65  As NECA explains, for each provider (and for each service) NECA compared the total indirect expenses to the sum of the provider's CA and relay operator expenses.66  NECA determined that for traditional TRS, the ratio of one provider's indirect expenses to CA and relay operator expenses was approximately 60 percent, but that the weighted average of the same ratio for the other providers was approximately 6 percent.67  Because the one provider had an indirect expense ratio that was more than ten times the weighed average of the other providers, NECA applied the weighted average ratio (6.09 percent in 2006 and 6.35 percent in 2007) to the outlier's indirect expenses and reduced them accordingly.68  NECA made a similar adjustment to the indirect costs of this provider for STS and IP Relay.69

Finally, just a brief note on the technical picture.  I've been riding a few rippers lately, and what always amazes me is that even though they are going crazy, when I look at the 30 or 60 min chart, all it is doing is following a nice ascending trendline (just have a look at MAMA for another example).  Exactly the same thing here.  With the excemption of the sideways movement early in the move, there is clear trendline support, which GOAM has tagged several times and closed right on today.  If it breaks down tomorrow, then yes, my technical picture is gone too, but I would ask you to seriously consider if you want to lose your position, which has been well thought out, with an excellent entry because of what you percieve as a potential long term threat to overall profitability if and when they are as big and as inefficient as the big boys.  The medium term doesn't have to be 3-5 years - it can be 3-6 months to!!!

ST

Quote from: David Randolph on December 20, 2006, 05:43:30 PM
Ok, today we have a chance to deal with GOAM. But before that, just one more little issue on the "short term vs long term" controversy, all right?

Let's take GOAM as an example. You may think "the stock made its move, ok, it may go somewhat higher from here over the medium/long term, but what do I care, I already have a 60 - 70% profit, why should I wait, shouldn't I just look for another short term powerful horse to ride?"

I think simple mathematics answers this question. From now on, each time GOAM rises $5.85, that means I have doubled my initial investment. If/when the stock trades at $11.70 I'll have a paper profit of 100%. But at $17.55 I'll have 200%. And at $23.4 I would have 300%. At $29.25 I would have 400% ... and on, and on. Of course, this is basic. For the person that buys at $11.70, at $17.55, instead of another double, it will have just a 50% profit. For the one buying at $17.55, when/if the stock goes to $23.4, instead of another double as in my case, he'll be making just 33%. And the guy that buys at $23.4, even when the stock trades at $29.25 (which means another double for me) will only be 25% ahead on his money.

All this sounds so basic, but underneath I think there's the little secret that makes longer term strategies beat short term trading by far. While short term traders keep on fighting for those highly unpredictable and small percentage profits, the long term trader, with the same moves on the stock, is making a lot more money. After a big rise, the same $5 will mean another 100% for the long term trader and just 25% for the short term trader.

I think the man that took this idea beyond everybody else is also the most successful investor ever, Warren Buffet. I believe this is why he focuses so much on long term capital appreciation, because of this compounding effect.

But, and this is a big but, which stocks are set to appreciate several bags going forward, so we can take advantage of this compounding effect? It's hard to know, but one thing is certain, one needs to study the fundamentals of the company and its sector. Just technical analysis won't be enough.

I'm not that young anymore, that is, I need to be what I always wanted to be, a speculator, not a gambler.

Hi David,

Nice post but I have one comment about this.  I think that if there is any chance to take a hefty profit when a stock hits my target especially if it's about to hit a resistance area, I would take that opportunity to secure my profit.  The way I see it is that there will usually be a pullback where you can reenter the stock.  That's just my take on it.

The case you presented above is well put together but it's from a percentage standpoint.  If you make it from a dollar standpoint, you'll find that you'll make even more money assuming you buy on a pullback and buy the same number of shares.  Anyways.....it's been fun learning from 3sof for the past year.

Thai

I don't know if this will affect the current trading plan but this was posted on the other GOAM thread.

Quote
I see the FCC released some ruling regarding internet telephone calls

http://www.captionedtelephone.com/fcc-ipcaptel.phtml

New ruling enables captioning over the Internet during telephone conversations

Posted: December 20, 2006

The Federal Communications Commission (FCC) today announced its approval of Internet-based caption telephone technology for compensation from the Interstate Telecommunications Relay Services (TRS) Fund. The ruling was issued in response to a petition by the Hearing Loss Association of America (HLAA) and 35 other consumer organizations on behalf of people nationwide with hearing loss. Today's decision paves the way for people who have difficulty hearing over the phone to receive written captions of their conversations, via the Internet.

In announcing the ruling, the commissioners praised IP-based captioned telephone technology as a "giant step forward" for people with hearing loss, noting the potential to improve employment, social, and economic opportunities for people who are hard of hearing. Several commissioners praised the transparent nature of the technology as meeting the goal of providing functionally equivalent telecommunications access.

"Today's announcement from the FCC makes broadband connectivity even more valuable to people with hearing loss, as it gives them access to the telephone system in ways never before possible," explains Robert M. Engelke, President of Ultratec and developer of Captioned Telephone technology. "We applaud the efforts of HLAA and the other consumer groups around the country who have worked tirelessly to make this vision a reality."

The first offering will be in the form of consumer trials with a select pool of testers, beginning in early 2007. More details will be available at this site early in the new year.

Does anybody know what their gross margin is?. They are holding their stockholders meeting tomorrow at 10am in Hackensack, NJ. Can anybody attend?

On the Yahoo thread Ziebeaster has the IP Relay listed as 33% gross margin.

Here is post concerning the two issues that were brought up this evening. Can anybody confirm the bit about the FCC using the MARS method, because that could be huge.

From the yahoo board written by(Zibeaster)

There are two issues shorts are over it right now.

1) IP Captel. This is a technology update and is not a threat to GOAM's business. traditional captel phone has been in use and reimbursed by TRS since Jan. From the data from NECA, the minutes usage stays flat or down since April. the ip captel does removes the equipment restriction, but it is after all, a technology that can only be used by service providers, which GOAM is. if this technology shows good future, GOAM is certainly going to acquire it and provide it. It is not a substitution for IP Relay (deaf can not use IP Captel) or VRS relay (almost exclusively used by deaf)

2) Some has claimed in the end, since IPRS and VRS rate is currently determined by the cost estimate of all providers. As GOAM gets more market share, its cost advantage will disappear because its cost figures more prominently in the rate calculation, such drag down the rate.

My answer to this is, If a defense contractor can make huge profit, GoAM can do the same. Besides, FCC is considering a new rate calculation method calld MARS. which is basically use the current rate by state contractors. I believe this is a very likely outcome. which will solve many problems of the current method.

Again, just look at how much government contractors make, you will get a idea why GOAM is not going to be short changed.

Hi eggman1, you can find gross margin for the Relay service on the latest 10-Q:



(please scroll to the right)

Yes, GOAM's gross margin for the IP relay service is 33%.

I agree with zibeaster on the IP Captel.

QuoteMy answer to this is, If a defense contractor can make huge profit, GoAM can do the same. Besides, FCC is considering a new rate calculation method called MARS. which is basically use the current rate by state contractors. I believe this is a very likely outcome. which will solve many problems of the current method.

It can, but this trade isn't a sure thing anymore, and the upside potential was greatly diminished in my opinion. My initial view was that if the company was cost efficient, it would naturally show a profit. But the rules say there can be no profits in the industry, as the rate of payment is attached to the industry's total costs.

Yes, rules can change, but that's just speculation. There's no certainty. Also, the growth rates for the market are, after all, irrelevant, because the price per minute paid goes down if the total costs for providing the service go up. As for the defense contractor example, I think they're a different issue, because they're paid by federal taxes and not by an FCC Fund which comes directly out of the telecom providers. And there aren't any rules saying they can't make a profit, or that they will be paid at a cost reimbursement basis.

I think GOAM can still be a nice holding for some time, as we all expect positive EPS numbers for the next two or three quarters, at least. But that might be priced in already. And I fear dilution, with all this volume and the management knowing it won't be able to show consistent profits over the long term ...

The conclusion is: I don't think GOAM is a good long term business for shareholders, therefore I'll take my 60% plus profit and move on. It doesn't have to do with short term/long term strategies, no doubt I continue to believe in long term investing (my selling reasoning is precisely built upon long term perspectives), but that needs to be done exactly on the right stocks, and GOAM doesn't look like the right stock to hold for the long term.

Good luck to everybody that will continue holding

Thats equivalent to downgrading GOAM to SELL from STRONG BUY by 3SoF.

Anyway, I agree with your analysis.

Quote from: stocky on December 21, 2006, 07:51:29 AM
Thats equivalent to downgrading GOAM to SELL from STRONG BUY by 3SoF.

Anyway, I agree with your analysis.

Yes, we covered all the aspects on the revenue side, but we were missing another part, a rather important one, profits !

But I wouldn't call this recommendation a strong sell. I don't think GOAM will come back down to $4 anymore (unless there's massive dilution), but I also don't see it running to $20 next year, because people will always have this concern of zero medium/long term profits.

Perhaps GOAM will do, say, $2 M a year in profits, I guess the FCC could live with that (or better, the telecom providers wouldn't care much), but if GOAM makes $5 M or $10 M a year in profits, people will start complaining that they were supposed to give money for the deaf community, not to ensure a company's fat profits. And GOAM is a publicly traded company, their profits would be splashed everywhere.

So, my conclusion is, GOAM has value, but with the current business model and rules, its long term value has a cap at say, $20 to $30 M? Since the market cap is within this range now, I think it is fairly valued, so I need to sell it.

But, of course I can be wrong, good luck to all that will continue holding !

Good call David.......I didn't have many shares anyway of GOAM.  I sold today.