Wave Systems Corp (NASDAQ:WAVX)

CAPS Rating: 1 out of 5

The Company develops, produces and markets products for hardware-based digital security including security applications and services.

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Player Avatar jmac0319 (55.13) Submitted: 3/9/2010 4:34:03 PM : Outperform Start Price: $15.44 WAVX Score: -174.33

This is for risk-takers, I think. They have a huge accumulated deficit, have been running in the red, and were almost bounced off NASDAQ. On the plus side they have cash on hand, have a promising product line that is timed well, and they have demonstrated orders. Their SG&A expenses look very high to me, making me question their mangement. R&D expenses are so high that I would expect more products coming out.

The area of security software - especially disk encryption - is pretty hot and their are quite a few competitors. Microsoft itself has disk encryption built into higher-end versions of Vista and Windows 7. The big advantage for WAVX is their centralized administration products, though I don't think it will be long before Microsoft follows through in this area (may already have).
The rapid rise in stock price we see I'm sure is driven by recent contracts and their partnering with Hewlett-Packard, but sales enough to bring them back in the black have yet to be realized. I think short term it all depends on their next quarterly statements which better show a good profit trend. I'd bet a small investment on their quarterly showing an improvement. Long-term is more questionable, especially with all the other products out there.

I have no knowledge of M&As, but I'd think they would be easy pickings for a buyout, unless the accumulated deficit is a problem.
Roll the dice!

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Member Avatar Honestguy (< 20) Submitted: 8/18/2010 4:50:10 PM
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Lots of cash burn and no where nears enough to show for it..

Member Avatar TechieTim (< 20) Submitted: 8/30/2010 11:12:25 PM
Recs: 3

Jmac0319: Wave was not almost bounced from the NASDAQ, they WERE actually delisted back in the 1990's. They came back and have slowly been stepping down the different NAZ markets, often on a delisting watch, although not currently.

They have NOT partnered with Hewlett Packard, despite the rumors. The CEO was asked that directly in the Q2 CC and he said words to the effect, "Not yet."

You should read the reviews of Wave's product you think so highly of. Users don't. Even the most avid supporters of Wave believe next to nothing the CEO says because he has promised profitability all the way back to 2003 and has never been able to achieve it.

At the Q4 CC in March, the CEO said Wave would have its first "cash flow positive quarter from operations in the company's history" in the first quarter of this year. That quarter closed just a few weeks later without breakeven. Did not happen in Q2 and there is little chance it will happen in the current quarter.

This company overpromises and underdelivers. The CEO put his brother and father on the payroll to run a subsidiary called Wave Express that burned through nearly $70M with total income of less than $100K. [The son was made President and later CEO by the father. He had no background in running a company.]

Wave Express was finally shuttered, but guess what? The father and brother are still on the payroll. Together these 3 family members take home over a million a year in salaries, bonuses and stock options. Officers have given themselves rich no-interest loans, some of which had to be forgiven, or granted special bonuses to cover them.

You are right to comment on the high expenses. Recently published employee comments criticized the constant travels to demos and presentations.

This company does not have a great history. It has been written about extensively (NYT, Barrons, Smart Money) and a satiric play was written about it by a fellow who lost all his money in Wave. A Wave message board (elsewhere) is controlled by a fellow who deletes criticism, censors posts and bans and "jails" those who ask legitimate questions or who require accountability from the mgt.

Longtime shareholders have been diluted many times (about 25) and have suffered through a reverse split of 3 to 1.

I don't know how Wave ended up on this list of great stocks, but if one reads the history of this company, such confidence does not seem warranted, based on dismal performance against meteoric predictions of a sky-high share price.

Tim

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