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Small-cap techs get rocked
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April 3, 1998: 4:41 p.m. ET
Niche technology companies trading on the Nasdaq find troubled times
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NEW YORK (CNNfn) - The Nasdaq Composite has been riding high, breaking records along with the Dow industrials and the S&P 500 indexes. But while the technology-heavy index has been partying in the last week, smaller niche technology companies have suffered.
Shares of Imnet Systems Inc. (IMNT), which makes electronic health-care information systems, dropped 6-7/16 to 16 in late-afternoon trading, losing more than 28 percent of its value. The company announced Friday that its third-quarter earnings would fall far short of analysts' expectations.
Other companies took a hit earlier in the week after issuing profit warnings:
- Axiom Inc. (AXIM), which makes billing data collection systems, shares were down 11/16 to 3-1/2 in late-day trading Friday. It has lost half of its value since Tuesday.
- Shares of SpaceLabs Medical Inc. (SLMD), which makes vital signs monitoring equipment, lost 10 percent of its value Wednesday. Its shares gained 1/4 to 19-1/4 late Friday.
- Shares of Presstek Inc. (PRST), a digital imaging and printing company, dropped more than 22 percent Wednesday. It has since recovered somewhat, gaining 5/8 to 15-5/16 late Friday.
None of this has hurt the Nasdaq, however, which places more weight on large-cap stocks than smaller ones.
But whereas a large-cap technology stock - a Microsoft or Compaq, for example -- can recover from a disappointing earnings result, the niche players pay dearly for their weaknesses.
"In the high-growth healthcare market, you see companies trading at a premium multiple and they end up not performing," said David Francis, managing director of Volpe Brown Whelan. "These companies are not just getting hit, they're getting hammered."
But analysts say that while profit warnings have hurt these small-cap companies, investors' flight to large-cap stocks has taken its toll, as well.
"A niche player is going to have to demonstrate sound fundamentals to attract money," said Anthony Vendetti, vice president and senior healthcare service analyst for Gruntal & Co.
"If their track record is a problem, they're going to have difficulty attracting investors. Investors are becoming much more selective when it comes to small caps, and justifiably so. If you don't do your homework, you could be in for a big surprise."
Not only are investors being more selective, one analyst said, but they're changing the rules of the game, effectively leaving many niche technology companies hung out to dry.
"When a small cap names some kind of disappointment, there tends to be a loss of sponsorship, especially for a company under $200 million," said Thomas Carley, a research analyst at Jensen Securities. "Institutional investors don't care. Their definition of a small cap is probably a $500 million market cap right now." 
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