The market action on Monday just took some of the edge off STEC (NASDAQ:STEC).
The red-hot STEC stock (say that three times fast!) more than tripled since the first-quarter earnings report in May, and multiplied itself by seven in the last six months. Meanwhile, rivals like SMART Modular Technologies (NASDAQ:SMOD) and Western Digital (NYSE:WDC) have "only" quadrupled and tripled, respectively. So, a post-earnings drop of 6% this week can't have hurt current shareholders too much.
But is the business doing well enough to call it a buy-in opportunity for the rest of us?
Let's start with the price drop -- it had nothing to do with weak earnings, sluggish guidance, or any other item of actual business performance. No, shareholders reacted quite appropriately to an announcement made shortly before that report -- that the company's two top executives are selling 7.5 million of their personal shares as a secondary offering that puts no money into STEC's coffers. The announcement caused a downgrade of the company's stock and the resulting light 6% slap on the wrist.
The secondary offering comes courtesy of CEO and Chairman Manouch Moshayedi and (take a deep breath here) COO/CTO/secretary/director Mark Moshayedi, who are dumping at least 7.5 million shares worth about $250 million.
Since the offering is a sale of the executives’ current holdings, it shouldn’t dilute current shareholders. And these guys have certainly been running STEC nicely of late. Sales stopped at $86.4 million, a 54% year-over-year bounce and 36% sequential improvement. Most of the outrageous gains are coming from solid-state drive shipments into enterprise-class storage systems -- the flagship ZeusIOPS product line saw a 375% increase on last year's sales and more than double the volume of last quarter. It looks like that technology has hit the tipping point and is ready to take over the storage market. Major STEC customers include IBM (NYSE:IBM) and Hewlett-Packard (NYSE:HPQ), who pack the drives into enterprise storage systems.
Those inspiring sales drove non-GAAP earnings to $0.42 per share, again more than quadruple the $0.09 per share seen in 2008. I can see why Mr. Market is cutting the Moshayedi brothers some slack.
But perhaps the backdraft should have been a little bit stronger. STEC is trading near all-time record levels, while direct competitors like SMART Modular and SanDisk (NASDAQ:SNDK) are nowhere near back to full health after the recent Flash memory price wars.
Compare today's situation with 2006, when the computer memory market last saw good times, and chip supplier Micron (NYSE:MU) is trading at half-price. STEC? A nine-bagger during that time, with most of the rise happening in the last year.
Micron sure looks much more palatable right now. Think we missed the boat on STEC? Let me know in the comments box below.
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