Tech bear market? Well, this was definitely not the case for shareholders
of Handspring. The
stock has been a hyperperformer. Since its IPO this year, the stock has
seen a price range of $22-3/8 to $99-5/16. Currently, the stock trades at
$90, with a $11.2 billion market cap.
There are good reasons for the surge. After all, the founders of Handspring
— Donna Dubinsky and Jeff Hawkins – were the masterminds behind the biggest
selling personal digital assistant: Palm.
What’s more, Handspring has executed brilliantly on its business model. In
the past quarter, the company generated sales of $70.5 million, which was a
36 percent sequential increase. Losses were manageable — $8 million.
The sales should continue to surge. The company has been aggressively
signing up new retailers and there is also international expansion (such as
in Canada and France).
Of course, the technology is top-rate. In fact, Handspring has rapidly
developed a thriving developer community — made possible by the innovative
Springboard technology (which allows for add-ons to the Visor device). In
all, there are over 5,400 registered developers in the Handspring community.
So while Handspring is a good company, is it a good stock? The valuation
does seem rich at its current market cap.
For the most part, Handspring has a relatively small float of 10 million
shares. In other words, the stock can be highly sensitive to news.
Moreover, investors have been excited about the prospects of the Christmas
season. No doubt, Handspring will have strong sales from Santa. Yet, the
Christmas-effect is a leading indicator. It often wears-off in November.
But to me, the most ominous sign is the company’s upcoming lock-up
expiration. This is when employees, executives and officers can sell their
holdings. The lock-up applies to about 115 million shares and will start on
December 17. With the recent run-up in the stock, it will definitely be
very temping for these persons to unload.