Orckit Communications Ltd fka ORCT

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Orckit, a falling knife?

01.5.06 | 14:29 By Aloni Madar

It was a crazy week for Orckit Communications (Nasdaq: ORCT). The stock, quite a favorite among investors until recently, lost a quarter of its value. In fact, seen from the start of 2006, Orckit has lost half its value.

Some say that investing in stocks is like driving forward with your eyes fixed on the rear-view mirror, as the world of accounts will always reflect what was, not what will be.

Orckit in the rear-view mirror is a glittering sight. Looking ahead, though, all investors see is murk.
On Thursday Orckit published its results for the first quarter of 2006. Against the parallel quarter its results were good and against the previous quarter, the ;quarter of 2005, they were less good.

Revenues were $25 million and profit was $5.8 million. In the parallel quarter it netted $3.14 million on revenues of $20.6 million. But against the previous quarter, the results were a decline and the future looks worse.

Orckit shares are now 25% to 30% below their level at the end of the first quarter 2005. They are almost 50% below their level at the end of 2005.

True status

Is Orckit stock a buy opportunity? Is the question only one of true value, or of negative momentum as well?

The company's financial statements have a few lessons to teach. Management expects a slight drop in sales and a bigger drop in profits this year.

Yet the company will remain profitable. Its pessimistic scenario talks of $11.5 million profit.

Moreover, Orckit is a stable company with responsible management and an estimated earnings multiple between 10 to 20.

Those are the facts, and it's up to each investor to decide what to do with them.

Some investors seek falling knives, which is market argot for stocks sliding hard and fast that could cut you deep if you try to catch them. Is Orckit a falling knife?

Orckit is no fly-by-night that suddenly blew up into monstrous proportions, only to lose air overnight. The increase in its share price had been prompted by real achievements: higher sales and opening of its market. All this is still true.

Optimists look at the half-full cup of its executive review: trials of its products in the Japanese market, and the bottom of its guidance for sales and profits. By those criteria Orckit shares are a good buy. At a share price of $15-16, I personally believe Orckit is attractive for the medium run.

The writer and his company may hold securities, including securities mentioned in this column. Under no circumstances does the information in this column present a recommendation to buy or sell stocks. This article does not constitute a substitute for personal advice from an expert.

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