If you spent any time in Fooldom today on America Online, you might have noticed that clicking on our food industry area took you to an ad for a Pontiac. Or that clicking on the Fool Portfolio report button took you to a report from early April. Many of our links have been spazzing out all day. Rest assured that everyone is indeed aware of this, and that America Online is working fast and furious to try and fix it. Thanks for bearing with us!
MF Merlin's Economic News today discusses the Labor Department's May news release on the Consumer Price Index. You'll find the Economic News, as well as all our Special Sections, FoolWires, and earnings reports, on either the Evening News or Stock Research screens. In tonight's Fool on the Hill, MF Templar explains how we should interpret bookings and billings. Enjoy!
CEL-SCI CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CELI)") else Response.Write("(NASDAQ: CELI)") end if %> shares skyrocketed today, up $3 15/16 to $12 15/16, after the company's immune-boosting drug Multikine (TM) was granted a patent by Japan. Why the excitement? Well, Japan is one of the largest pharmaceutical markets in the world. In addition, some of Multikine's components may possibly treat cancer, and are being studied, with initial results being promising. In other medical news, BIOMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BMRA)") else Response.Write("(NASDAQ: BMRA)") end if %> announced it will be marketing a new five-minute diagnostic test for prostate cancer. With the company expecting that this product will contribute considerable additional revenue, shares quadrupled -- up $7 3/8 to $9 3/4.
Diversification is music to the ears of investors in non-hazardous waste company REPUBLIC INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RWIN)") else Response.Write("(NASDAQ: RWIN)") end if %>. Republic announced today that it is buying used-car superstore CarChoice for $95 million. This is in addition to previous plans to buy AutoNation, another used car chain, for $250 million. Spurring investors on were comments in the Wall Street Journal that superstore car purchases are the wave of the future. Shares were driven up $3 to $32 1/4.
Attention, KMART <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KM)") else Response.Write("(NYSE: KM)") end if %> investors! Merrill Lynch reinitiated coverage of the discount retailer with "intermediate-term buy" and "long-term accumulate" ratings, sending shares up $15/16 to $13 5/8. The analysts must have some faith in the company as a turnaround play, and indeed, the discount retailer's shares are inching back toward their 52-week high of $16 1/4, far from the low of $5 5/16.
DENDRITE INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DRTE)") else Response.Write("(NASDAQ: DRTE)") end if %> hit a nerve with investors, announcing an alliance with privately-held PRESIDIO SYSTEMS to offer comprehensive solutions and services for automating clinical trials. The prospect of Dendrite's customer management skills combined with Presidio's clinical trial automation software sent investor synapses firing and shares up $6 to $33 1/2.
QUICK TAKES: DIANA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DNA)") else Response.Write("(NYSE: DNA)") end if %> continued to rise mysteriously, up $14 3/8 to $86, with the company again offering no comment... VANSTAR CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VST)") else Response.Write("(NYSE: VST)") end if %> blew away earnings estimates today, reporting $0.44 per share when only $0.14 was expected. This might have had something to do with the fact that shares rose $3/4 to $16 1/4... CKE RESTAURANTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CKR)") else Response.Write("(NYSE: CKR)") end if %>, operator of Carl's Jr. restaurants, beat estimates by $0.08 with same-store sales up 12.7% in the first quarter. Shares jumped $2 1/8 to $27 1/8... KNIGHT TRANSPORTATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KNGT)") else Response.Write("(NASDAQ: KNGT)") end if %> popped up $1 3/4 to $20 1/2 after Morgan Stanley initiated coverage with a "strong buy" rating... News that telecom software developer TCSI CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TCSI)") else Response.Write("(NASDAQ: TCSI)") end if %> is branching into India, via a deal with DUET TECHNOLOGIES, lifted shares $4 1/2 to $39... NATIONAL MEDICAL FINANCIAL SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NMFS)") else Response.Write("(NASDAQ: NMFS)") end if %> was up $1 9/16 to $9 1/2 on no apparent news.
Edu-tainment software publisher EDMARK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: EDMK)") else Response.Write("(NASDAQ: EDMK)") end if %> mentioned yesterday that it expects its fourth quarter earnings will disappoint analysts, and that, indeed, it will probably sustain an operating loss. This did not go unnoticed. Smith Barney downgraded the company from "buy" to "neutral", with shares plunging $3 1/4 to $21. Also cut, from "outperform" to "neutral", were SOFTKEY INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SKEY)") else Response.Write("(NASDAQ: SKEY)") end if %>, dropping $1 15/16 to $25 and BRODERBUND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BROD)") else Response.Write("(NASDAQ: BROD)") end if %>, down $1 3/4 to $39 1/8.
AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %> and multimedia software developer MACROMEDIA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MACR)") else Response.Write("(NASDAQ: MACR)") end if %> announced a strategic partnership today, but investors must not have been too impressed. America Online shares slipped $2 7/8 to $46 7/8, while Macromedia shares were minimized by $2 7/8 to $33. The deal will integrate Macromedia's Shockwave multimedia technology in America Online's software. Bud Colligan, Macromedia Chairman and Chief Executive Officer (CEO), added that, "This agreement enables Macromedia to extend our reach into the consumer market".
HAAS WHEAT & PARTNERS Chairman Robert Haas proposed to PARLUX FRAGRANCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PARL)") else Response.Write("(NASDAQ: PARL)") end if %> and Parlux said no. Investors didn't like the smell of this, and shares tumbled $1 3/4 to $12 3/8. Haas Wheat had earlier agreed to invest $40 million in the fragrance company through a 20-year bond, but the deal is now off.
QUICK CUTS: Automotiveand data communications electronics maker SHELDAHL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SHEL)") else Response.Write("(NASDAQ: SHEL)") end if %> saw its shares shellacked, down $1 9/16 to $24 7/16, after warning that its fourth quarter net would disappoint analyst expectations... BRIGHTPOINT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CELL)") else Response.Write("(NASDAQ: CELL)") end if %> was downgraded from "buy" to "market performer", falling $2 5/8 to $26 1/2. Weakness in the recently-acquired Allied Communications was blamed... A race bias lawsuit against O CHARLEYS INC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CHUX)") else Response.Write("(NASDAQ: CHUX)") end if %> gained class action status today, with investors chucking shares down $2 1/4 to $12 1/4... Printing technology firm PRESSTEK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRST)") else Response.Write("(NASDAQ: PRST)") end if %> slid $8 1/2 to $68 on no apparent news. The company's 52-week high is $200, and its low $38 1/2.
An Investment Opinion
by Randy Befumo (MF Templar)
FOOL ON THE HILL
On Booking & Billing
"Booking" is a term used in many industries when an order is received by a manufacturer. Oftentimes, a booking is accompanied by a statement like this: "Hey, George... we booked an order for 3000 Spinning-Gizmos yesterday from Seimens. They're thinking about rolling out the electronic combination tomato dicer and bread slicer in December and are ordering a big enough inventory to hold them through the year".
"Billing" is what happens when Gizmo, Inc., proud manufacturer of the Spinning-Gizmo family of whirligig assemblies, actually manages to make and deliver the 3000 Spinning-Gizmos. After they send Seimens a bill for 3000 SGs, they can normally expect payment in 30 to 90 days if they are running a tight fiscal ship. If they are a little starved for business or their customer is having some problems, payment can sometimes take longer.
If you were to measure "bookings" against "billings" for Gizmo, Inc. you would need to find out the dollar amount of whirligig assemblies booked in a given month and the dollar amount of whirligig assemblies billed in a certain month. If in May, for instance, Gizmo booked $3 million worth of whirligig assemblies and billed only $2 million, we'd have:
Bookings = $3 million------------- = 1.5 = Book-to-Bill ratio
Billings = $2 million
Gizmo, Inc. has a book-to-bill ratio of 1.5. What does this tell us about a company? Actually, not really all that much. We know that Gizmo has taken in more business in the month of May than it could deliver -- but is this a good sign or a bad sign? It really depends on whether or not you think that building up a backlog of unfilled orders is a good idea. If you are selling one-of-a-kind whirligig assemblies that can not be bought anywhere else, it is great -- that backlog is like money in the bank. If somebody else sells whirligig assemblies that are just the same, or maybe even a little worse, and can deliver them now, then your high book-to-bill might actually cause you to lose business over the long term. This is called a "capacity constraint", because you only have the capacity to manufacture $2 million worth of whirligig assemblies a month.
So -- is a high book-to-bill not necessarily a great thing if you are in a commodity business? You betcha. If Gizmo, Inc. is capacity constrained and Whizbang, Inc. adds on some capacity before Gizmo can get the capital together to build its own, Gizmo is gonna lose some customers. In the whirligig business, you see, a customer is viewed as an annuity stream of revenues -- not a one-time sale. Odds are, if your customer walks out the door and someone else gives him equivalent or better service, he or she is gone for good.
For the sake of simplicity, lets assume that all whirligig assemblies are the same price in a given month. Does it change your opinion about Gizmo's 1.5 book-to-bill if you find out that the $2 million in billings was 2 million whirligigs sold at an average price of a dollar, but the $3 million in bookings was actually 1.5 million whirligigs sold at an average price of two dollars? A units booked to units billed ratio would be a whopping 0.75, meaning that unit growth is slowing down in spite of the fact that revenues are rising.
This can work the same way in reverse for a low book-to-bill. Say in May Gizmo booked $2 million but billed $3 million for a book-to-bill of 0.66. Pretty lousy, eh? What if you found out that the average selling price of whirligigs booked for the month was 50 cents but the average price for orders billed was one dollar? Unit volume would be 4 million booked and 3 million billed, or a unit book-to-bill of 1.25. Which of the two situations is better? Depends on what your cost of manufacturing whirligigs is and whether or not decreasing unit volumes does not put you out of business because you have lost so many customers.
This extended example is intended to give you an idea behind the dynamics of a relatively straightforward-appearing number like the book-to-bill. As investors, we have been mindlessly conditioned to believe high is good and low is bad, when actually you really need a heck of a lot more information to figure out what is really going on. Blindly reacting to the book-to-bill ratio without really understanding the dynamics of pricing and margins behind it amounts to guesswork.
***CORRECTION FROM TWO DAYS AGO: I said SIERRA SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SERA)") else Response.Write("(NASDAQ: SERA)") end if %> had a price/sales ratio of above 5.0. It is actually 1.8, as I mistakenly grabbed the price for SIERRA ON-LINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SIER)") else Response.Write("(NASDAQ: SIER)") end if %> when building my spreadsheet. The company still remains on the tippy-top of the acquisition range we have seen, however, and does not fundamentally change my opinion that the company is not quite yet a value play.***