Based in Denver, Colorado, CoreSite has data centers in metro Los Angeles, San Francisco, Chicago, New York City and Northern Virginia.
What makes CoreSite's story attractive to me is that it is riding the wave of a current global trend.
A brief history: First we stored stuff on shelves and in the closet, and visited our friends to share it. Then we stored stuff on floppy disks that could be carried from machine to machine. Then we stored on local hard drives and moved stuff over a local area network. With The Cloud, we've cut out the local storage and keep our stuff Out There someplace, always accessible yet ever remote.
That someplace is The Cloud, an increasingly pervasive presence in all of our lives. Does The Cloud "signal the death of materialism, of possessing, of collecting?", asks USA Today?
CoreSite provides the home where The Cloud resides.
COR had the most bullish chart of nine stocks added over the weekend to the Zacks top-buy list.
The chart shows a near-steady rise from $12.34 on Oct. 4, 2011 top today's high of $24. That's also an all-time high, making COR a blue-sky stock, with no resistance to the upside.
So what's the downside?
Well, return on equity is a negative 2%. This company is reporting losses more often than not. And long-term debt amounts to 52% of equity. That's a heavy load to carry when you're not making money.
Also, there's liquidity. The stock has average volume of only 182,000 shares, insufficient to support a wide selection of options with high open interest. The bid/ask spreads are quite wide.
Yet, institutions love this company. They own 95% of the stock. They've bid up the price to the point where takes $2.74 in stock to control a dollar in sales.
And of course, Zacks' compilation of analyst sentiment shows great expectations for COR.
Back in the tech-boom days of the late 1990s, there was a company called PSInet that was riding the wave of a current global trend, in that case providing the infrastructure for retail Internet access -- read "fiber-optic cables".
It was a big deal. The company's name was on the Baltimore professional football stadium.
Of course, the company had never really made a profit, but hey: It was riding a wave. Profits would come later.
I speculated heavily on PSInet, and did well for awhile, until there were reports of a glut of fiber optics in the marketplace. As so many companies do, PSInet had overreached beyond what the market for its product could absorb.
The stock plummeted and was delisted. The company declared bankruptcy, and by 2002 was out of business. And a portion of my funds rode PSInet all the way to the bottom. I learned a good lesson from that trade.
It strikes me that the PSInet saga is a cautionary tale for all who would trade in new-tech infrastructure companies. What CoreSite provides is a commodity. Everyone who's interested knows how to set up a data center. There are few barriers to entry.
And The Cloud is trendy. It's a wave. A lot of people are enamored of the story and want to get in on the action. It's a recipe for over supply, in my book.
CoreSite may well avoid the fate of PSInet. But maybe not.
So, enough of sad remembrances of times past.
Given the sorry state of the options inventory, COR is a shares play. That means I lack the ability to gain the leverage that options bring and to insure an existing position against downturns.
Decision for my account: Man, I don't trade bullish in companies that don't make money. And I prefer trades that have leverage. And I really love the ability to insure against downturns. I'm passing on COR -- no, Passing, with a capital P. I may give up some huge profits -- surely the smart analysts and institutions and Zacks know better than I -- but I'll sleep better at night without COR on my books.
Methodology
I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.Disclaimer
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.
No comments:
Post a Comment