Trading Diary Notes – LWSN

I bought Lawson Software (LWSN) and Silicon Motion (SIMO) on Friday to get long. Both had stellar earnings beats, along with good charts.

One interesting thing I saw over the weekend on LWSN is that they have $248m of cash/mkt securities on their balance sheet with negligible debt. Current market cap according to Yahoo Finance is $856m. But since it’s profitable and cash flow positive, under M&A analysis, LWSN’s market cap is really closer to $608m since whoever buys them would pocket the cash and get the earnings stream. Assuming analyst estimates of 36 cents a share for FY06 earnings, and 105m diluted shares outstanding, LWSN should earn in the ballpark of $38 million. This makes its forward P/E closer to 16, rather than the current forward P/E of 22.5. Funny thing, Yahoo Finance’s market cap calc looks like 113m shares outstanding, but LWSN’s financials say 105m fully diluted. I’m guessing LWSN is more accurate, which would make LWSN’s true market cap closer to 793m. Call it a market inefficiency of info, ie more people look at Yahoo than SEC filings. Backing out cash, 793m-248m = 545m, brings forward P/E closer to 14. Downright cheap.

I’m hoping LWSN is a buy and hold. I won’t hesitate to sell if the market plunges, but this gives me comfort in holding the stock.

Some good news, the portfolio’s first full month performance (since inception/start of law school) as of this weekend is 15.5%. It was higher, but I’ll take that any day. So cheers, here’s to the return of Greed. Hopefully I won’t have to experience the return of Fear (and loathing).

Ding ding ding…

Update: I should have waited until the true “end of the month” to calculate 1 month returns like mutual funds do. It would have been 21% vs 15.5%. I love mark up day – good enough for a 5.5% improvement on returns today. But I bet my original calculation is a “cleaner” return than the potentially artificial end of month numbers. I should also write another post called “day trading for fun and profit”… I took advantage of the run up for some intraday gains. Not recommended, but it’s a way to play the gun up game, without the overnight risk.