Anybody follow CLRK?

[Groty]

I uncovered this little company a couple of weeks ago and I'm very intrigued. Just wondering if anybody has any intelligence on it they can share.

Any of the "inititing coverage" reports published by the analysts that follow the stock would be very helpful. Thanks

[AvivaSimplex]

Here's a bullish article about CLRK's prospects:
http://www.investors.com/editorial/I...issue=20060411

From what I gather, CLRK's business is to combine and design controls for LEDs produced by companies like CREE and Nichia. They appear to be more focussed on custom-designed ("to spec") jobs than producing generic lighting solutions such as for home use.

In other words, if you expect LEDs to replace incandescent and florescent lights in the next 5 years, and you want to play that change, CLRK may not be the best bet (CREE is the purest play, as far as I can tell. It announces earnings this evening, and it has a tendency to drop after earnings, so tomorrow might present a buying opportunity).

Still, CLRK will benefit from falling LED prices. That will increase their margins and expand their potential markets. CLRK is richly valued already, so to some extent this is priced in already. If lots of competitors pop up, its margins will be very vulnerable. The key to this stock, IMO, is how good its patent protection will be at keeping out competitors.

Another article about the prospects of LEDs in home lighting (doesn't mention CLRK specifically):
http://compoundsemiconductor.net/art...azine/12/4/9/1

[Groty]

I had already seen the IBD article. Makes it sound like CLRK soultions provide a very compelling value proposition to customers in the market for "high impact" lighting. Investing in a provider of customized lighting solutions doesn't really interest me. What I find interesting is the potential application of its technology for white lighting. As LED pricing continues to decline, I wonder if this technology may not eventually displace halogen, incandescent, flourescent, and neon lighting systems. If so, now that would be a huge market opportunity. That might explain in part the obscene multiple the market is giving it.

When they filed their S1 prior to being brought public back in 2004, CREE was the largest shareholder. SAC was listed as the second largest. Cree was/is also an important supplier.

Anyway, I'm just starting to dig into it. I won't pull the trigger prior to listening to the next conference call....and not until we get some sort of pull back in the stock.

Thanks again for the links.

[DesertCat]

It's year over year earnings growth is about 24%, year over year sales growth is about 30%. It's trading at 100x earnings. it sounds like a nice company with a nice business that may not be worth todays price for a long, long time.

[Groty]

Aren't you looking in the rear view mirror? Shouldn't we use prospective earnings to value it? Earnings are expeted to be $0.30 in 2006 and grow to $0.51 in 2007, or 70% growth. Is this realistic? Who knows?

Valuing the stock off 2007 earnings (which some may think is a stretch, but just work with me), the multiple is ~40x. Using the 70% growth in earnings between 2006 and 2007, we calcualte a PEG ratio well below 1.

I couldn't pay the current price without doing tons more work and knowing the business/model inside out. Just trying to show how some people might be able to justify doing so.

[DesertCat]

[ QUOTE ]
Aren't you looking in the rear view mirror? Shouldn't we use prospective earnings to value it? Earnings are expeted to be $0.30 in 2006 and grow to $0.51 in 2007, or 70% growth. Is this realistic? Who knows?

Valuing the stock off 2007 earnings (which some may think is a stretch, but just work with me), the multiple is ~40x. Using the 70% growth in earnings between 2006 and 2007, we calcualte a PEG ratio well below 1.

I couldn't pay the current price without doing tons more work and knowing the business/model inside out. Just trying to show how some people might be able to justify doing so.

[/ QUOTE ]

Sure, I'm measuring the company and management team on what they've actually done, not what someone thinks they can do in the future. For example, last quarter they made 7 cents per share. So that estimate of 30 cents this year is only growth of about 10%. And in february they issued a warning that they'll actually only do 3-5 cents in Q1 of this year.

And PEG ratios are rules of thumb that you have to be wary of. Because a company grows earnings 70% in one year doesn't imply they are worth a 70x PE ratio. What will the earnings grow the following years? A single year burst of EPS growth is worth much less than a steady EPS growth at the same rate. A PEG ratio only makes much sense if you are looking at the companies long term growth rate, not a single year peak growth.

Essentially the PEG ratio is quick way to estimate whether the future growth in earnings is justified by todays price. The much more accurate (and tedious) method is to do a discounted cash flow analysis of future earnings. A dollar a year from now isn't worth a dollar today, you have to adjust for that. So you can't apply a PEG ratio to future earnings without discounting for the time value. Depending upon what discount rate you use, that 51 cents in 2007 is only worth 40-45 cents today.

Lastly, I'm not saying they can't increase earnings substantially. The speculation is that as sales grow, they will control costs so net margins increase, if that's true they can grow earnings much faster than sales. But only for a time, i.e. it's a lot easier to increase margins from 8% to 16% than it is from 16% to 32%.

And my key point is they haven't done any of it yet. Not even started. And you have to be very certain they'll grow earnings substantially in order to justify paying such a high price. And I'm skeptical anyone can be that certain. One last point, the company is also seems promotional, which is another red flag.