PALO ALTO, Calif. (CNN/Money) -
I opined here in June that Tyco was no Enron. I was right. Conclusion: Declare victory and move on.
To review (click here for the column), on June 12 shares of Tyco closed at $10.15, giving the company a market value of about $19 billion, compared to its revenues of about $40 billion. After all the revelations of CEO Dennis Kozlowski's alleged bilking of the company and numerous concerns of shady accounting, the market's assumption was that there was far more bad news to come on Tyco.
Some of that arrived on Thursday, when the company disclosed further investigations into how it accounts for sales of alarm systems at its ADT unit. Investors took a sunnier view, however, choosing instead to focus on the pronouncement by hired-gun lawyer David Boies that there appear to be no more nasty revelations in the offing. The stock closed Thursday at $15.49.
You don't need a calculator to recognize a 50 percent gain. Now Tyco's a $30-billion market-cap company with about $37 billion in annualized sales, all sorts of funky accounting issues and a handful of declining businesses. Is there more upside? Perhaps. But the obvious cheapness is gone. Next!
Amazon
Listening to me would have kept you from making money on shares of Amazon (AMZN: down $0.97 to $18.89, Research, Estimates), which are up about 50 percent since I suggested that even a profitable Amazon was no Wal-Mart (WMT: up $0.56 to $57.03, Research, Estimates) -- and never would be. It seems that every quarter that Amazon gives away more free shipping and sells more stuff just makes investors want to own its shares more.
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Amazon is a survivor. There now seems to be no question about that. But it isn't clear it ever will generate huge profits. I noted in January that its cash had dwindled by $100 million over the course of 2001, despite its newfound profitability in the fourth quarter. Since the end of last year, cash and marketable securities have fallen by another $130 million, to $866 million. Debt still totals more than $2.2 billion.
Then there's the valuation. Merrill Lynch estimates that at $19, Amazon trades for 80 times estimates of 2003 earnings, compared a multiple of 12 for traditional retailers. Perhaps Amazon can eventually be slightly more profitable than other retailers, but seven times more profitable? I don't think so.
And finally, a (perversely) hopeful data point
Last year I reported from the American Electronics Association's annual financial conference that optimism was finally waning in a big way among tech-stock investors. That conference will be held again this year beginning Nov. 3 in San Diego. The number of presenting companies -- all publicly traded, relatively small tech concerns -- has dropped from 293 in 1999 to 180 this year. Less interest in tech? That's just what tech needs before it can make a comeback.
Have a good weekend.
Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at lashinskysbottomline@yahoo.com.
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