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Pegasus Flies Too High

http://www.fool.com/investing/small-cap/2006/07/27/pegasus-flies-too-high.aspx

Brendan Mathews
July 27, 2006

Pegasus Wireless (Nasdaq: PGWC  ) reported its second-quarter earnings with a press release titled "Company Demonstrates Extraordinary Growth With Record-High Revenue." In the release, CEO Jay Knabb describes the results as "thrilling" and says his company achieved "many important milestones." But despite Knabb's enthusiasm and his tendency to purchase company stock, I'm not convinced.

None of the events of this past quarter, now matter how remarkable Pegasus says they are, have changed my original opinion of this company. The problem is that the market capitalization is based on speculation and momentum trading rather than on the fundamental value of the business.

Quite simply, the company did not earn enough this quarter to justify its current market capitalization of more than $500 million. Revenue increased 10% to $25.4 million, and net income rose 8% to $247,863. That works out to about a penny per share in earnings, which isn't much of a payout for a stock trading at around $7 per share.

Pegasus bulls will say the earnings don't matter because the company has such a bright future. They will cite newly announced products such as wirelesscables, a gadget that makes a home-entertainment system wireless, and WiJet.e, a wireless-multimed