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No. of Recommendations: 6
Whether you are playing Gorilla Games, Royalty,
Godzilla, or Rule Breaker games, we are very 
interested in hypergrowth markets.

I took a look at the long term charts for a few 
companies we all wish we'd bought way back when.  Based
upon price movement and volume pickup, I picked 
realistic entry points for these companies when they
were clearly creating a Wall Street buzz.  I then took
a look at their revenue growth rates at the time of 
the theoretical due diligence period.  Looking over
the 10-K's, it appeared consistent growth over a few
years was very important, as was at least a decent
gross margin.  These companies were basically debt
free too.  I threw down the end of FY Price/Sales
numbers from Quicken's site.


JDS-Uniphase	
October 1998

	Revenue growth  Gross   P/S
Ann-98	175.801	64%	47.6   13.5
Ann-97	106.966	55%	46.3	9.1
Ann-96	69.073	63%	47.5	8.2
Ann-95	42.282			2.4

	Last QoverQ	40%			
	3 yr growth	61%					

Network Appliance
Aug-98

	Revenue growth  Gross   P/S
Ann-98	166.163	78%	59.3	7.3
Ann-97	93.333	100%	55.9	5.1
Ann-96	46.632	215%	55.9   11.1
Ann-95	14.796			2.4
 					
	Last QoverQ	74%
	3 yr growth	124%					

Siebel Systems		
August 1998	

	Revenue growth  Gross   P/S
Ann-98	118.775	203%	91.7	7.8
Ann-97	39.152	387%	94.5   12.4
Ann-96	8.038	1500%	94.7   23.3
Ann-95	0.05				

	Last QoverQ	168%
	3 yr growth	1234%					

America Online		
July 1996

	Revenue growth  Gross   P/S
Ann-96	1093.85 177%	42.6	3.7
Ann-95	394.29	241%	41.7    4.2
Ann-94	115.722	NA	40.3    4.1
Ann-93	NA		
		
	Last QoverQ	121%			
	3 yr growth	NA			



Some comments on valuation - today's P/S numbers 
continue to trouble me.  We have attempted to justify
triple digit P/S ratios today for Nextgen type 
companies growing 100%-500% year over year.  Certainly
Siebel and Network Appliance grew comparatively with
Foundry, Redback, Juniper, Brocade, etc., yet never
commanded such a high multiple.  Are we really in a 
new paradigm?  Or have we overbought some great 
companies and formed the proverbial "bubble."  Enough
worrying.  

I used Netscreen from Marketguide.com to create a 
screen for high growth companies.  Many of these 
companies are in hyper-growth.  For the screen I used:

Sales growth >=40% for Quarter over Quarter, TTM, and 
3 year period.

LT Debt:Equity <=0.1

Insider Ownership >=15%

Price to Sales <=40


Unfortunately I cannot screen for Gross Margin, but
it is easy to reduce the pack via this method.

I came up with this list for meeting the criteria:

TFSM AH BRIO BOBJ CACS CINR CMTO CREO COOL CBXC DFXI
DITC FORR HLIT HLTH IFIN ISSX IIXL LCOS MCTR
MXT MCRL MSTR MNMD NEON ORCT PFCB PRGN PCLE PIXR
PLCM PLMD PDII PXCM RAZF RMDY RFMD SONE SMRA STTS
SHOO SNBC TENF UHCO VNWK WFII WITC ZDZ


This list includes some non-tech companies.  As far
as I know none are involved in Gorilla Games, and
others are second tier players in hypergrowth markets.
But this is a nice starting point for companies which
are growing at lightspeed.

The next step of course is to identify any proprietary
technology driving the growth in these companies.  Or
perhaps identify a category killer or new medium, as
AOL was in the mid 1990s.  Definitely the prototype
Rule Breaker.  Obviously Lycos is growing fast but it
holds no such power.

One company which showed up a few months back and was
looking very interesting is Aspect Development, which
of course has been bought by ITWO.

If you re-screen by removing the 3 year growth rate
requirement, the list gets much longer.  But this also
introduces interesting companies such as Emulex and
Q-Logic.

If anyone would care to discuss any of these companies,
the forum is open.  :)  If you have ideas for changing
the screening criteria I am up for suggestions.

Happy Hunting
DP
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