Novice Investing - Waiting out is a Novell Idea

Date: Tuesday 13th 2008f May 2008 07:30:42 AM

Waiting out is a Novell Idea - 12/07/2007

By: Novice Investing Staff

Exactly one year ago, we decide to add Novell Inc. (NOVL) for our sample portfolio. With a rich balance sheet full of cash ($ 1 Billion or $ 2.87 per share), we decided to pick the shares up when it dipped below $ 6 per share late last year. The shares zoomed to as high as $ 8.26 per share and it has fallen quite a bit since then. Our fair value analysis showed that Novell was fairly valued at $ 7.64 per share, but we felt that Novell can go a lot higher than its fair value would indicate.

While we expected Novell to post $ 0.14 per share of profit in fiscal year 2007, it has managed to post a $ 0.07 loss the past three quarters. Analysts still expect Novell to post $ 0.14 per share for 2007, which is in line with our expectations. However, from the trend of things, we can sense that Novell shares will not perform up to our expectation. Fist, revenue for the first three quarters of 2007 are clocked in $ 706.8 Million, which gives an estimated annual revenue of $ 942.5 Million. This revenue figure fell short of $ 1.030 Million we were expecting. One of the main reason we were buying Novell for our stock portfolio was its alliance with Microsoft. Thus far, it hasn't borne fruit in this fiscal year.

We have two options. We could wait for the alliance to work. Or we could bail now with a small profit on Novell. While selling at today's price meant that our analysis was flawed, we may get back into Novell if the price is right. After all, our analysis showed that Novell is fairly valued at $ 7.64 per share based on its expected fiscal 2009 result.

What is the final decision? After careful consideration, we decide to sell our Novell position at $ 7.00 per share for a small profit. We are watching Novell carefully and may buy back its shares should opportunity arises. Meanwhile, let's watch whether 2009 fiscal year will be as good as we predicted.

END

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Novell Inc. (NOVL) or any other securities.

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