I tried to decide whether this stock is a Trick or a Treat, and I have decided that it's a Tricky Treat. Perhaps you've seen the episode of The Simpsons where Homer is talking to his cardiologist (or was it just Dr. Nick?) and you see his heart beating wildly out of control one minute and calmly lub-thubbing the next, as he's alternately told encouraging and discouraging things about his health. Well, as I dug around for more information on Creative Technology, that scene kept coming to mind.
You'll see what I mean soon. For every promising thing about Creative Technology, there's something worrisome.
First off, take a gander at the Fool/PEG ratio for this leading maker of computer sound card and multimedia upgrade kits. Using earnings estimates from First Call, it's a very appealing 0.53.
Titillated? Consider that its net profit in 1996 was $37.6 million. Oops -- make that negative$37.6. A loss of $37.6 million.
Unimpressed? Note that there are six analysts covering the company, and that they generally give it a thumbs up.
Excited? Consider that in February, Schroeder Wertheim gave it a seemingly unusual rating: "Avoid."
Alarmed? Look at the P/E ratio for the company -- 9.7 based on estimated 1998 earnings. Not too shabby, compared with the 15% growth expected over the next five years.
Encouraged? Well, that 15% is from a consensus of only one analyst.
Bummed? Note that the seven analysts expect the company to report $0.45 per share in profits this quarter, 165% ahead of year-earlier levels. And five analysts expect $2.29 in fiscal 1998, topping 1997 by 24%. (Note that the company's next earnings report is due right around Halloween. How appropriate.)
Impressed? Let's shift away from mere numbers for a bit, and look at what the company actually does. It makes sound and multimedia systems for personal computers. If you have an IBM-compatible machine, you may be familiar with its top product, SoundBlaster, which has become an industry standard. Sales went from $5 million in 1989 to $25 million in 1991 to $292 million in 1993 to $1.3 billion in 1996. Today, sound cards contribute 51% of revenues, with upgrades kicking in an extra 41%.
Soothed? Note that a company called Intel is looking to eat Creative's lunch, coming out with newfangled multimedia chips of its own that incorporate much of the multimedia technology that is currently provided by Creative's products.
Panicked? Know that the company only has $7 million in long-term debt and $196 million in cash as of 1996.
Intrigued? Then search recent company news and you'll find a bullish press release detailing a joint venture between Creative and Cambridge SoundWorks, bringing high-quality stereo sound to personal computers.
Tired? I don't blame you. If you have any interest in this company, you might want to give them a jingle and order an investor's package. Look over the information for yourself and see what you think. And finally...
I can't close without remembering fondly my own trick-or-treating days -- in the days before it occurred to anyone to x-ray a bag of goodies, when we could still prowl around town after dark, and when we hoped for and received home-made popcorn balls. Along with our bags, we carried a coffee can with a slit on top to collect funds for UNICEF. So if you're in the mood, if perhaps you remember some UNICEF days of your own, head over to the UNICEF website and drop a few electronic coins into their coffers.
Next: Treat: Hershey Foods Corp.