Review of the 3rd Telco Saga – Bitter End

Last year was the year of high flyers. Not because money is being made by companies, but just merely news of “potential profits” and “potential telco bidder” will make the stock skyrocket. Today we are going to go back and review, what drugs the traders and investors have been taking to justify investing in so called telco stocks.

NOW Corp (NOW)

Do you remember Now corporation? The company has virtually little to no earnings, a deficit in its balance sheet and a opinionated CEO to push the stock to the moon. During the height of its glory, the stock went up from P2 to P20. Just by the mere fact that they will be joining the bidding is enough to propel its stock price to 10 times its market cap. This is without any change to its earnings nor assets. Just the possibility of being the 3rd telco eventhough there is little chance of it being a third telco because of the capital requirements asked by the government.

From 2 to 20 and back again.

When you “invest” in a company this way, if the “potential” did not happen, you can expect the price of the stock to go back to where it started “pre-bidding”.

During the decline, the CEO of NOW Corporation sued the government for not picking his company as the 3rd telco. Perhaps his last effort to bring back confidence into his company? The traders who touted this stock are now quiet.

EasyCall Communications (ECP)

From P3 to P75. This is what ECP is all about, just by trying to bid for the 3rd telco spot they managed to make money. Who made money you say? The insiders of course! While all this is going on, the insiders managed to sell their shares at their peak and is still selling today. Talk about opportunities.

The insiders would like to thank all the traders who shot this stock to the moon.

The story is the same. Little to no earnings and deficit in its balance sheet. The rise was riding on its ability to win the bidding. Since they lost, there are still room to go before it reaches the original price of P3.

ISM Communication (ISM)

Hurray for the winner of the bidding. Our 3rd telco. The stock price should rise to the moon now that they have billion of pesos of future earnings right? right? Well, no…

If you bought this stock at at P1.40 before the news of Dennis Uy acquiring ISM shares, you are still in the green if you kept on holding it. But that would mean, you are also risking losing the money when ISM loses the bidding. Since it did not happen (congrats by the way), your next risk would be, are you willing to wait for ISM to become a profitable 3rd telco? It would be a long wait and it may not include dividends and being volatile for the amount of media coverage that its getting. You are buying the company with the future priced in, your only hope is that future must happen. If it does not, you will lose your money.

Winners and Losers

There will always be people who will make money and lose money in these speculative booms and busts. Its just the nature of the game. And examples such as these are a great way (at least for me) to remind ourselves that price will ultimately follow value. If these companies are of any value that is, it will reflect its price.

For me, I will never know who will win in these biddings. And even if I do know, I would still not bet my money. Since the risk of losing it is greater. I would rather not lose anything than the possibility of making a killing. If that entails making large risks. Like betting on a company that earns nothing.

Leave a Reply

Your email address will not be published. Required fields are marked *