NVTL

[Garoh]

I cannot believe this stock sits unchanged despite today's news.  I think I'll just buy a couple more shares. 

MarketMaker 

[David Randolph]

I cannot believe this stock sits unchanged despite today's news.  I think I'll just buy a couple more shares. 

Yes, it's weird how consolidation periods work. It looks like the stock wants to tire short term traders before leaping.

Let's get that revenue CAGR number, starting by analyzing the revenue trend:



Analysts are expecting $365.9 M in revenues for 2007, but the company already said it will exceed $100 M in Q1 alone, growing more than 150% from 2006 levels . So my take is full year 2007 revenues will be way above than $400 M.

Anyway, the company will give full year 2007 guidance on May 1st.

The historical revenue trend is 81.4% (considering analysts estimates, which seem very conservative to me), so which should be the number I consider as revenue CAGR for the next 3 years?

Well, I understand the company's products quite well, and I believe the world will demand them for the next, say, 5 years?

I expect about 100% revenue growth in 2007, following just 35% growth in 2006, so revenue growth is accelerating.

Ok, let me shoot for a revenue CAGR of 1.6, that is, 60% a year, on average, for the next 3 years, how's that sound?

I'll keep holding NVTL.

[David Randolph]

I was going to work to try to build a reasonable net profit margin estimate but the company's fundamentals are changing so much and so fast (to the better) that I feel it is more appropriate to wait for the full year guidance that the company will share with investors on May 1st.

I'll just hold NVTL as I wait for the news, which I know will be frankly positive, but I wonder about the magnitude of the changes. Let me make this clear: I don't see any downside potential to NVTL at this point, I just can't estimate the upside potential with the current publicly known information.

I'll keep holding NVTL.

[David Randolph]

Finally NVTL was able to close above $17. I believe it is just a matter of time for it to breakout to new highs above $18.

But, what I've said yesterday still holds true, I prefer for to wait for the full year 2007 guidance from the company before estimating the 3rd variable of the model, the net profit margin. Also the company talks about Non GAAP numbers, and I want to know the impact of stock option compensation expenses and other expenses, because of course, I always work with GAAP numbers. I have some doubts about the differences between GAAP and non GAAP for NVTL, as fundamentals changed so dramatically over the last couple of quarters.

I'll derive the new valuation model after Q1 results on May 1st. In the meantime I'll keep on holding NVTL.

[David Randolph]

Technically NVTL is moving towards a new high above $18.15, and I think nothing will stop this rise before the April 1st conference call where we'll get the 2007 full year guidance.

Revenue growth and margin expansion has been so powerful in Q1 2007 that I don't know which numbers I should use as my long term estimates. For you to get an idea, NVTL said Q1 2007 EPS will be "more than $0.35", and Q4 2006 EPS was just $0.08. If you're new to this service you can read the full press release in the following link:

• Novatel Wireless Updates Financial Guidance for First Fiscal Quarter
Business Wire (Mon, Mar 26)

Whichever the 2007 full year guidance is, in my opinion NVTL is worth more than $30 a share. But I need that piece of information to derive better estimates and get to the expected share price CAGR and the correspondent optimal selling price.

I'll keep on holding NVTL.

[David Randolph]

There was no new information on NVTL, I'll keep holding the stock, waiting for May 1st and the 2007 full year guidance.

[David Randolph]

There's nothing to think about on NVTL, just sit tight and hold it through the May 1st conference call where we'll have the 2007 full year guidance. I expect a big jump up the following day and I'll keep on holding NVTL, eager to derive reasonable long term estimates, a thing that I can't do now because fundamentals changed completely over the latest two quarters.

I'm afraid of extrapolating Q4 2006 and especially Q1 2007 expected results (according to the company's guidance) because I wonder about seasonal or special effects that might have happened in Q1 2007, since net profit margin expanded a lot. I also wonder about the difference between non GAAP and GAAP numbers.

Here I am thinking too much. Just hold NVTL.

[David Randolph]

Because of eggman11's insistence on buying the three best stocks for the 3 Stocks on Fire Portfolio (I want to thank him for pressing on this issue), I derived NVTL's model using perhaps best case scenario estimates, and got this:



These estimates can change a lot when the company gives us the 2007 guidance, but as it is now, NVTL is just the 7th best stock in the Main Portfolio, so I can't have it at the 3 Stocks on Fire Portfolio. NVTL will be replaced by SILC at that portfolio today.

Still, given my estimates (we'll discuss them over the following updates), NVTL has an estimated share price CAGR of 46.18% and the optimal selling price is $34.4, so I'll keep holding NVTL.

[David Randolph]

NVTL will perhaps have a correction towards the ascending trendline or the 50 days SMA on the chart below, I don't have a clue about the short term. Over the medium term I see this stock over $30, so I'll keep holding it through the ups and downs. Q1 2007 results and 2007 guidance will be released next Tuesday.

[buddjas1]

NVTL trades like there are many more outstanding shares than the listed 30 million.  I would not be surprised if there were actually three times that many.

[David Randolph]

NVTL trades like there are many more outstanding shares than the listed 30 million.  I would not be surprised if there were actually three times that many.

The following was taken from the latest NVTL 10-K filed with the SEC:



On March 2 they had 30,253,896 shares issued and outstanding. Do you think they're lying to the SEC or that they increased the share count by 60 million since March 2, 2007?

I don't understand why you wrote what you wrote buddjas1, it doesn't make sense to me. Please explain, thank you.

There's only one more week to NVTL's release of the Q1 results and the full year 2007 guidance. I expect very good news, since demand for the company's products is growing at a torrid pace around the world.

On my valuation model I have just 30% revenue CAGR, but I hope to raise this estimate when I get the full year 2007 guidance, since revenues are growing more than 150% from 2006 levels:

«Revenues for the first quarter are expected to increase by over 150% year-over-year and by over 30% sequentially to above $100 million. Non-GAAP EPS, which excludes stock based compensation expense, is expected to be above $0.35 per diluted share. These expected results compare to previous guidance of revenues of $80 million and non-GAAP EPS of $0.16 per diluted share.»

I'll continue holding NVTL.

[buddjas1]

On March 2 they had 30,253,896 shares issued and outstanding. Do you think they're lying to the SEC or that they increased the share count by 60 million since March 2, 2007?

I don't understand why you wrote what you wrote buddjas1, it doesn't make sense to me. Please explain, thank you.

I know what the company says, but that does not match the way the stock acts.  On March 26, over 8 million shares were traded (1/4 of the total outstanding shares) and the stock barely moved ($15.18 to $17.03).  The average three month volume is over 1,300,000.  That means that, if there are really only 30 million shares outstanding, all outstanding shares (not just the float) changes owners completely once per month.  Stocks with 30 million shares outstanding do not trade that way.  Maybe NVTL is just an anomoly.  I cannot think of any other explanation for the trading activity.

[David Randolph]

On March 2 they had 30,253,896 shares issued and outstanding. Do you think they're lying to the SEC or that they increased the share count by 60 million since March 2, 2007?

I don't understand why you wrote what you wrote buddjas1, it doesn't make sense to me. Please explain, thank you.

I know what the company says, but that does not match the way the stock acts.  On March 26, over 8 million shares were traded (1/4 of the total outstanding shares) and the stock barely moved ($15.18 to $17.03).  The average three month volume is over 1,300,000.  That means that, if there are really only 30 million shares outstanding, all outstanding shares (not just the float) changes owners completely once per month.  Stocks with 30 million shares outstanding do not trade that way.  Maybe NVTL is just an anomoly.  I cannot think of any other explanation for the trading activity.

I think that's because insider ownership is low, of the 30,253,896 shares outstanding, 29,856,658 are on the free float. For example, the Chairman owns just 60,570 shares and the CEO owns just 28,086 shares. Perhaps this explains the high trading volume, when combined with the bullish trend and probably some day trading activity.

What do you think?

[David Randolph]

Nice warm up today for tomorrow's Q1 results presentation and 2007 full year guidance. Results will be out after the market close.

(there's a mistake here, results will be out only next week)

Analysts expectations are still way behind the curve in my opinion:



Everything seems to be ready for a big gap up on Wednesday, because $0.62 EPS and $366 M revenue for the full year seem ridiculous when the company already said it will earn more than $0.35 EPS in Q1 alone (non GAAP, I wonder about the magnitude of the difference between non GAAP and GAAP numbers) and will have revenues of more than $100 M in the 1st quarter.

Analysts are assuming EPS and revenues will shrink throughout the year, and that doesn't seem like a reasonable expectation, given the red hot products the company manufactures and the worldwide demand for these products at this point in time.

I'm expecting the best, but prepared for the worse, due to my sound diversification and money management rules. I'll hold NVTL through earnings and probably beyond.

[labatts6254]

I thought Q1 and full year 2007 results were due out next Tuesday on 05/01/2007?

Cheers,