The Best and Worst
Stocks of 1997
Loser -- TriTeal Corp.
(Nasdaq: TEAL) Price -- $1 5/8
The Company's Biz. TriTeal markets an operating system that allows computer users on various systems to interact through one common interface called the TriTeal Enterprise Desktop. Instead of forcing all users to adopt a single, homogenous operating environment, TriTeal's software allows users to operate on heterogeneous machines but still be connected through the same network. TriTeal's goal has been to create an interoperable, consistent, and cost-effective open system to simplify the networking environment.
The Story. When TriTeal came public it was widely viewed as the next Citrix Systems (Nasdaq: CTXS). Coming public in August of 1996 at $8 per share, the stock shot up as high as $23 1/4 by mid-January of 1997. The company began to sell off after reporting third quarter earnings on January 21st and never recovered. An April revelation that the company had blown fourth quarter earnings because it failed to close a sale to the Pentagon pushed shares from $12 3/8 to $6 3/4 in two weeks.
Although licensing contracts with IBM (NYSE: IBM) and Corel Corp. (Nasdaq: COSFF) came through in late April and early June, revenues did not. In spite of the fact that the company used the hottest software language in the universe, Java, it remained unable to make any sales. Although the company stressed it was fully compatible with Citrix Systems' NetFrame product, many information technology professionals found the two products to be redundant and just went for Microsoft-backed Citrix. Revenues took a total swan dive in the second fiscal quarter ended in September, tumbling to a mere $744,000 from $5.5 million the prior quarter.
How Could You Have Avoided This Loser. TriTeal had all of the makings of a questionable investment -- no track record, a high valuation, and too much of a connection with a "hip" concept. The company had no track record of delivering earnings to the table. The valuation was 6.5 times profitless trailing sales when it came public and had the audacity to peak at 17.4 times sales after only one quarter of meager profits in January. Finally, the company was stressing the fact that some of its products were written in Java a little bit too much, particularly considering that despite the best efforts of Sun Microsystems and George Gilder, Java has been a commercial disaster. Although the operating language has attained a high degree of ubiquity, almost no one is making money directly from Java -- especially not TriTeal.
The Future. With sales drying up and the company consuming about $6 million in cash last quarter, the $34 million in cash and short-term investments can hold the company for at least the rest of the year. With no long-term debt, at $1 13/16 the company actually sells for only $19.9 million -- a discount of approximately $14 million from the cash it has in the bank. However, without any evidence that the company can close large orders profitably, this short-term inefficiency does not make a long-term investment. The shares might see a bit of a bounce in the beginning of 1998, but investors would do well to adopt a wait-and-see attitude before acquiring shares of the company.
[Fool Articles: Daily Trouble, 09/09/97: TriTeal Corp. ]
-Randy Befumo (TMF Templr)
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