Of the companies I have been closely following, Orckit Communications (Nasdaq: ORCT; TASE: ORCT) is set to publish its results on Tuesday before the start of trading, with Marvell Technology Group (Nasdaq: MRVL) publishing its results following the close of trade on Thursday. I admire the former and would like to admire the latter but am somewhat wary in light of the company’s high multiples. What both companies have in common, at least with regard to the last quarter, is that they both are expected to report profit of $0.41 per share and phenomenal growth. But this is as far as the comparison goes, since Marvell stock is trading at $0.64 a share while Orckit trades at $0.28 only.
Marvell has reported growth for 32 consecutive quarters, while Orckit, in its new reincarnation as Corrigent Systems, has come to prominence due to its strong growth during the first three quarters of 2005. This difference has led investors to give Marvell a profit multiple of 47 and sales multiple of 12, both of which are for the past year, while the multiples for Orckit are less than half those of Marvell, despite the parity in profit per share in the last quarter and the strong growth for both companies.
I expect that if Orckit continues to surprise, institutional investors will join it at some point during 2006, thereby boosting its multiple with the share price rising substantially as a consequence. As regards tomorrow’s results, I am curious to know what caused the Orckit management to push their way to the end of the queue of companies reporting for the fourth quarter as I personally have always admired them for their policy of filing immediate reports. In the last two years it has reported on January 27 while in 2003 it had already filed its report on January 16.
Because I am assuming that Orckit’s financial systems have only improved with the passage of time, my guess is that the company deliberately postponed publication until today, in the hope that it will be able to announce a substantial contract that will in turn enable the guidance issued back in November to be to revised for 2006. We will learn today whether it has succeeded or is on the verge of winning another contract like the one with KDDI. Although investors’ sights are set firmly on the Japanese market, I expect the Indian market to be the one providing the surprises where the Orckit contract is concerned.
Published by Globes [online], Israel business news - www.globes.co.il - on February 21, 2006