NVTL

[David Randolph]

NVTL has broken the agressive uptrend support. Is it due for another 10-15% correction before the next run up? Looks like a lot of stop limit orders are executing thus collecting the profits. Should we hold until the earnings no matter what?

NVTL closed just a bit below its ascending trendline. The 50 days SMA support is coming up at $22.41 now.

I regret selling at $20.  Hopefully I can re-enter this gem.

You're not the only one DragonAMG, I bet there's a lot of people on the sidelines looking to buyback or buy NVTL for the first time. They were waiting for a pullback to happen. Well, here's their/your chance.

http://www.secform4.com/insider-trading/1022652.htm

This is the reason?

Yes, management has been converting options and selling small amounts of shares (small in comparison to the total number of shares outstanding, I wouldn't mind having their quantity of options to convert (in some cases at $1.01) and sell for a huge profit).

Insiders don't own much of NVTL, in fact, almost nothing. Institutional investors own the company. So management is just a bunch of employees looking to get their pay check as fat as possible. But not very relevant to the overall company, they stick to their stock option compensation plans.

I would say almost anybody could run NVTL successfully, because the company's products are enjoying explosive demand across the world. The company could be in auto-pilot and still grow immensely.

It is possible that NVTL goes down to the $22 area or so in this short term dip, but that's just due to profit taking/technical factors, I don't see any change in the fundamental trends, not now or in the next few quarters.

I'll continue holding NVTL, expecting to see $30 before $20.

[la-onda]

fyi:
Sierra Wireless, Novatel Shares Fall
Thursday July 5, 1:22 pm ET
Sierra Wireless, Novatel Shares Fall After Rival Option NV Issues Disappointing 2Q Forecast

NEW YORK (AP) -- Shares of Sierra Wireless Inc. and rival wireless modem maker Novatel Wireless Inc. fell Thursday after a Belgium-based competitor preannounced disappointing second-quarter results.

Option NV, which trades on the Over the Counter Bulletin Board in the U.S., said its results for the first half of 2007 will miss its earlier expectations. The company cited an unfavorable product mix that skewed toward older products with lower selling prices and margins.


Avondale Partners analyst John F. Bright noted that although Sierra Wireless and Novatel likely fell on Option's weak preannounement, Option's results have disappointed over the past several quarters while both Novatel and Sierra have outperformed Wall Street's expectations.
Bright, who rates Sierra and Novatel "Market Perform," wrote in a note to investors that Option's preannouncement could indicate the company is losing market share to its rivals, particularly in USB modems.

Shares of San Diego-based Novatel tumbled $2.15, or 8.4 percent, to $23.61 in afternoon trading. The stock has more than doubled since the start of the year. In the past 52 weeks, it has changed hands between $8.11 and $26.45.

U.S.-listed shares of Canada's Sierra Wireless fell $1.04, or 4.1 percent, to $24.66 in afternoon trading. The stock has traded between $10.58 and $26.22 in the past year.

[DragonAMG]

putting in an order to buyback NVTL at $22.50

on a separate note - I know you don't like shorting stocks... but, FSLR - definitely looks like a bubble stock to me.  Can you also do a study on AAPL?  I see AAPL going to $200 then splitting.  I've owned AAPL since it was $80 (when I was very scared to buy it because it looked high, now here I am thinking it will go to $200 and then split). 

[David Randolph]

fyi:
Sierra Wireless, Novatel Shares Fall
Thursday July 5, 1:22 pm ET
Sierra Wireless, Novatel Shares Fall After Rival Option NV Issues Disappointing 2Q Forecast

NEW YORK (AP) -- Shares of Sierra Wireless Inc. and rival wireless modem maker Novatel Wireless Inc. fell Thursday after a Belgium-based competitor preannounced disappointing second-quarter results.

Option NV, which trades on the Over the Counter Bulletin Board in the U.S., said its results for the first half of 2007 will miss its earlier expectations. The company cited an unfavorable product mix that skewed toward older products with lower selling prices and margins.


Avondale Partners analyst John F. Bright noted that although Sierra Wireless and Novatel likely fell on Option's weak preannounement, Option's results have disappointed over the past several quarters while both Novatel and Sierra have outperformed Wall Street's expectations.
Bright, who rates Sierra and Novatel "Market Perform," wrote in a note to investors that Option's preannouncement could indicate the company is losing market share to its rivals, particularly in USB modems.

Shares of San Diego-based Novatel tumbled $2.15, or 8.4 percent, to $23.61 in afternoon trading. The stock has more than doubled since the start of the year. In the past 52 weeks, it has changed hands between $8.11 and $26.45.

U.S.-listed shares of Canada's Sierra Wireless fell $1.04, or 4.1 percent, to $24.66 in afternoon trading. The stock has traded between $10.58 and $26.22 in the past year.

Thanks la-onda, that sure is a better explanation than mine for Thursday's sell off in NVTL's shares.

It looks like just an excuse to take profits ... NVTL's chart "needed a break"

One good indication from Option's guidance:

«Last week, Berg Insight forecasted that the European market alone will grow from five million 3G high speed wireless connections by the end of 2007 to 30 million by 2011.»

This is a 56.5% CAGR for the 3G high speed wireless connections market. It seems to corroborate the 68% revenue CAGR I have in my valuation model for NVTL. Besides that I have an 8% net profit margin estimate and a 29 earnings multiple (the industry average is 30 now).

putting in an order to buyback NVTL at $22.50

I think NVTL's consolidation period isn't over yet (I really don't know), but I also don't think you'll get away with buying the stock at $22.5. The 50 days SMA support is already coming up at $22.58. We'll see.

on a separate note - I know you don't like shorting stocks... but, FSLR - definitely looks like a bubble stock to me.

Yes, the stock decoupled from any reasonable fundamental valuation, because it is related with the solar market. It is valued on very high future expectations, which will probably happen, but it is hard to know how much of that is priced in or not. Anyway, I wouldn't think of shorting it, because I need 30% plus return per year in a way that makes fundamental sense, and no stock is priced in a way for me to believe it will fall more than 30% a year for the next three years.

Can you also do a study on AAPL?  I see AAPL going to $200 then splitting.  I've owned AAPL since it was $80 (when I was very scared to buy it because it looked high, now here I am thinking it will go to $200 and then split).

Congrats on your AAPL investment DragonAMG. Everybody loves that stock, and that's part of why I don't get excited about it. Everybody knows the story and the stock trades at lofty multiples. Any small disappointment and it will fall 50%, because it is priced for perfection. If iPhone doesn't sell as everybody thinks it will, the stock will suffer. If it does, AAPL shouldn't rise all that much.

Well, I guess I'm somewhat biased towards small and mid caps. AAPL is already a $114 B market cap company. Is it going to get bigger than Intel or Cisco? Perhaps, but no big deal for the stock price ... anyway, I should have bought it like you did, great return

In name of scalability I must get rid of my bias towards small and mid cap stocks. But I don't need to do that right away, not in the next few years either.

For which stock is this update? Ah, NVTL, I'll continue holding it.

[David Randolph]

I expect NVTL to beat the guidance it gave for Q2 results when it reports actual figures, as it happened over the last two quarters. The guidance the company gave was:

«Revenues are expected to be approximately $95 million, ahead of previous guidance of $90 million and representing year-over-year growth of over 100%. Non-GAAP EPS is expected to be $0.29 - $0.31 per diluted share, ahead of previous non-GAAP EPS guidance of $0.20 - $0.22 per diluted share and compares to non-GAAP EPS of $0.02 per diluted share in the second quarter of last year. Non-GAAP EPS excludes FAS 123R share-based compensation expense.»

It is interesting how a 5.55% increase in revenue is expected to produce a 42.8% increase in the quarterly non GAAP EPS. Is this representative of what management called "the leverage of our business model"?

I have just 8% net profit margin estimated in my valuation model because at the 1st quarter conference call the CEO said the long term net profit margin to be expected from the business should be in the high single digits.

This doesn't match well with "leverage in our business model", does it?

But, this guidance indeed shows a pretty dramatic margin expansion from just a 5.55% revenue increase.

So, there's some hope that long term net profit margin (which is crucial) can be more than 8%. I wonder about the pricing power NVTL has, in this very high demand environment.

I'll continue holding NVTL.

[David Randolph]

Good news out for NVTL:

• Novatel Wireless Provides Expanded Carrier Support for OEMs
Business Wire (Tue 8:00am)

Of course, the people that sold shares at today's open because of Home Depot news and its worries about the housing market effects in the general economy don't have a clue of how the stock market works. Anyway, I left the camp of making general market predictions some months ago and I feel very well in my current individual stock picker skin.

[David Randolph]

Of course, the people that sold shares at today's open because of Home Depot news and its worries about the housing market effects in the general economy don't have a clue of how the stock market works. Anyway, I left the camp of making general market predictions some months ago and I feel very well in my current individual stock picker skin.

hahaha, I'm really glad I left the market timers camp, because I wasn't particularly good at market timing, as you can see at the above quote.

We've had that press release for NVTL today:

• Novatel Wireless Provides Expanded Carrier Support for OEMs
Business Wire (Tue 8:00am)

It's somewhat weird that the world leader in wireless broadband access solutions, or to make it more simple, the company that makes the hardware that allows us to have internet connection anytime, anywhere, is worth just $753 M. Doesn't it feel like a multibillion dollar business?

As I look at NVTL's products, I must say that I bought them twice already. My partner has them. My brother and cousins have them (but consider they're all internet related professionals). Do you have NVTL's products in your house? I mean, it's one of those products that everybody will need, or better, that everybody will prefer when compared to a normal internet connection, don't you think?

Between having internet anywhere or just in my office, I'll always prefer the first option, provided that the price is similar. And it is similar, or even better for the mobile solution in most cases.

And then the thing is always being upgraded, because we all want more and more reliability and speed, right?

I just can't see an end to the demand driving NVTL higher, it wouldn't surprise me if NVTL matures at $5 B - $10 B market cap a few years from now.

I'll keep on holding NVTL for the long term.

[David Randolph]

I guess NVTL won't raise guidance again before the Q2 earnings release, which is scheduled to happen in August 6th:

• Novatel Wireless to Report Second Quarter 2007 Results on Monday, August 6th, 2007
Business Wire (Wed 2:00pm)

I'm very interested in having answers for the questions I wrote the other day:

I expect NVTL to beat the guidance it gave for Q2 results when it reports actual figures, as it happened over the last two quarters. The guidance the company gave was:

«Revenues are expected to be approximately $95 million, ahead of previous guidance of $90 million and representing year-over-year growth of over 100%. Non-GAAP EPS is expected to be $0.29 - $0.31 per diluted share, ahead of previous non-GAAP EPS guidance of $0.20 - $0.22 per diluted share and compares to non-GAAP EPS of $0.02 per diluted share in the second quarter of last year. Non-GAAP EPS excludes FAS 123R share-based compensation expense.»

It is interesting how a 5.55% increase in revenue is expected to produce a 42.8% increase in the quarterly non GAAP EPS. Is this representative of what management called "the leverage of our business model"?

I have just 8% net profit margin estimated in my valuation model because at the 1st quarter conference call the CEO said the long term net profit margin to be expected from the business should be in the high single digits.

This doesn't match well with "leverage in our business model", does it?

But, this guidance indeed shows a pretty dramatic margin expansion from just a 5.55% revenue increase.

So, there's some hope that long term net profit margin (which is crucial) can be more than 8%. I wonder about the pricing power NVTL has, in this very high demand environment.

I'll keep on holding NVTL.

[David Randolph]

NVTL closed at a new 52 week high, just beautiful:



But this isn't, by far, an all time high, check the chart since the IPO:



Before you start thinking that NVTL "at one point was at $200 and now it is at $27, so it is much cheaper now", let me tell you that the # of shares outstanding back in 2000 was 3.6 million and now it is 30.42 million. That means that at $200 in 2000 the market cap was $720 M, and today, at $27.19, the market cap is $827 M. The company is worth more now that it trades at $27.19, than what it was worth when it was at $200. But the folks that bought at $200 and held are down 86% on their investment anyway.

It goes to show you the importance of changes in the # of shares outstanding.

And it is a bit of an alert to me to perhaps increase my dilution factor for NVTL. I have just 1.02, but the company's history doesn't favor such a small number. I'll go deeper on this issue over the next update.

As for now, I have an 87% profit and I'll keep letting it grow!

[David Randolph]

NVTL's # of shares outstanding was 29,743,000 in December 31st, 2006. In March 31th, 2007, it was 30,211,000. This means an increase of 1.57% in one single quarter, which annualized gives me 6.44%.

I'm going to have to raise my dilution factor from 1.0243 to 1.0644 for NVTL. It's the problem when insiders don't have a significant share of the company, they need a very fat incentive package in terms of stock options to keep going. Apparently the CFO wanted more, so he left to pursue other opportunities.

The optimal selling price declined from $47 or so to $42.31, no big deal:



But the issue will be around net profit margin. Is it going to be about 8% for the long term, or can it be more?

I'm so dumb, with the guidance the company gave I can already calculate, more or less, what the 2nd quarter net profit margin will be:

«Revenues are expected to be approximately $95 million, ahead of previous guidance of $90 million and representing year-over-year growth of over 100%. Non-GAAP EPS is expected to be $0.29 - $0.31 per diluted share, ahead of previous non-GAAP EPS guidance of $0.20 - $0.22 per diluted share and compares to non-GAAP EPS of $0.02 per diluted share in the second quarter of last year. Non-GAAP EPS excludes FAS 123R share-based compensation expense.»

If they keep expending 6 cents per quarter in share-based compensation expense (thieves ), GAAP EPS will be something like $0.24. If we consider the share count will increase 1.57% from the 1st quarter, the share count will be 30.69 million, so, net income will be somewhere around $7.365 M, which means a net profit margin of 7.75%, near my 8% estimate.

So, no reason to change the net profit margin in my valuation model.

NVTL is still very attractive. I'll keep letting the profits run.

[spiritgate]

Are NVTL products part of the new iPhone?  Or will they be in the upgraded ones coming out later?  I'm just wondering because if it's true, we will be in the $$$ for quite some time!

[berloga]

I'll see if I can dig out a Portelligent tear down report on iPhone. Hopefully we''l be able to tell if that's the case.

[David Randolph]

Are NVTL products part of the new iPhone?  Or will they be in the upgraded ones coming out later?  I'm just wondering because if it's true, we will be in the $$$ for quite some time!

I'll see if I can dig out a Portelligent tear down report on iPhone. Hopefully we''l be able to tell if that's the case.

I don't think so. I don't see any product in Novatel's website for use in mobile phones.

NVTL may pullback a bit here, but like in all previous pullbacks the stock had, I'll see it as a buying opportunity, as the trend remains bullish and fundamentals are still attractive.

My valuation model says the optimal selling price for NVTL is $42.31, and with the current fundamental landscape I'll respect the model's indication.

[berloga]

Here is a link to the iPHONE contents by company.

http://www.thestreet.com/_yahoo/newsanalysis/techtelecom/10365910.html?cm_ven=YAHOO&amp%3bcm_cat=FREE&amp%3bcm_ite=NA

David is right, what were we thinking? Novatel does not provide cell phone components.
Major WiFi baseband and thranceiver players are Marvel, Atheros, Broadcom and Intel. Major RF front-end players are Skyworks, RFMD, Avago, Anadigics, TriQuint, Freescale.

[spiritgate]

Thanks guys.  I was reading something about it on yahoo message boards and I thought they would at least make a big announcement on that one.  You can't trust anything on those boards!