Shares in development tools supplier Forte lost half their value on Friday as the stock went into meltdown, despite the release of year end figures showing profits and a 110 per cent increase in revenue.
For the full year ended 31 March, California-based Forte reported a profit of $7.2 million against a loss of $2 million at this time in 1996. Revenue for the year was up 110 per cent from $30 million last year to $63.1 million this year. Earnings per share went from a loss of 11 cents last year to a profit of 34 cents.
But despite this good news, shares in the company continued a downward spiral, which began in the days leading up to the announcement of the full year results on Thursday. They ended their fall 50 per cent down on the day to close at just over $8, one-tenth of their 12-month high value of $81.
Morgan Stanley analyst Charles Philips downgraded Forte from an 'outperform' ranking to 'neutral', arguing that the company had fallen behind its plan primarily because of staff turnover and management issues. He predicted that the company will have to invest for the next two quarters in order to rebuild its distribution.
Investors were taken by surprise by the sudden decline of the Forte stock price. The company is widely recognised as having a technology lead in the high end development tools market, through a technique known as application partitioning.
Two reasons for the falling share price emerged as a result of a conference call from the company. One was a warning of significantly lower growth rates and margins in the first and second quarters of the new fiscal year. This was attributed to turnover in the US salesforce - which contributes the overwhelming majority of Forte?s revenues - and would be resolved by the second quarter of the year, insisted Forte executives.
The second issue relates to the implications of one of the fourth quarter?s major successes - a $5.5 million sale to telecomms carrier US West. Many investors appear to have concluded that this one sale inflated the year end figures with no detailed information available about the possibility of future revenue from the contract. By Forte?s own admission, completing this sale involved many salespeople who might otherwise have been chasing other business.
But investors were still perplexed by the speed of the share price?s collapse. "All of this is stock manipulation by the brokerage companies," alleged one. "They beat up Forte and secretly buy in at the low end, and upgrade the stock again."
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