Boring Portfolio

Boring Buying American Power Conversion
April 14, 1999


**This trade is being made under the regular portfolio policy, namely, once The Fool announces an intention to trade, that trade will be made within the next WEEK, as opposed to the next day. For more detail, please read the "New Trades" section of the Hall of Portfolios.**

American Power Conversion NASDAQ: APCC
Phone: (401) 789-5735
Fax: (401) 788-2712
132 Fairgrounds Road
West Kingston, RI 02892

American Power Conversion (Nasdaq: APCC) fell into the Boring Port's buy range today. Thus, we are announcing our intent to acquire $7,000 worth of the stock within the next five business days. We've discussed the company at length on the Boring Port board. In regard to why the stock has been falling recently and in regard to the company's business model, I call your attention to the following email exchange between myself and a friend of the Boring Port, which was published on our board.

I've revised downward our range of the company's intrinsic value, mostly because I've become more conservative with our near-term revenue growth assumptions and the longer-term competitive position of the company. That's just to say that we want to be neither too optimistic nor too pessimistic about the company's prospective growth in the future.

Here's our APC model (formatted for Excel 95 and 7.0) showing our growth assumptions and valuation assumptions. I've discounted all the models at 15% because that's what we see as our cost of capital. After today's close, the company's share price is pretty squarely within the range of intrinsic value that we've estimated. We know the concerns that some have about the PC industry and we don't share those concerns as strongly as some do.

Yes, we're always concerned that the secular growth rate we've witnessed over the last 15 years in PCs will fall off. If it does that tomorrow and doesn't come back, sure, we'd be hurt. We just don't think that will happen, which we've discussed numerous times in past portfolio reports. Given our growth rate assumptions and other financial assumptions (e.g., falling gross margins per the company's guidance), we think the market is pricing in the risks and the rewards fairly here and that our return will reflect the growth of the PC and communications markets as well as the company's ability to execute on those.


 



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