TV Endorsement Lifts Spotty O.C. Tech Firm’s Stock by 39%
A money manager’s bullish remarks about Irvine-based Epicor Software Corp. on financial news network CNBC apparently triggered a buying spree Wednesday that drove up shares as much as 85% in a firm coming off a dismal year.
The company’s stock--which has been slumping over the last year amid a spotty financial performance--surged after Entrust Capital Inc. co-founder Gregg Hymowitz said the software company is moving aggressively into e-business products, and has $35 million in cash and no debt.
“It’s not a very well-followed company on the street. The bottom line, we think it’s a very compelling story,” Hymowitz said in an interview. “We think this stock is undervalued.”
He is a principal at Entrust, which holds a 3% stake in Epicor. He said he was not obligated to disclose his firm’s holdings during the program.
Much of the trading frenzy apparently was triggered by day traders, who tend to hop aboard fast-moving stocks in the hope of big short-term profits.
In addition to Epicor, Hymowitz praised three other stocks on the network’s “Squawk Box” show, all of which moved up.
Ion Networks Inc. surged $7.38 to $37.63, Telephone & Data Systems Inc. gained $1.75 to $126.25 and Shaw Communications Inc. added 75 cents to $45.63.
But Epicor’s shares drew the most buzz.
After Hymowitz’s comments early Wednesday, traders put in a deluge of orders before the market opened, sending the stock charging out of the gate, analysts said. Then a second wave of traders responded to the stock’s gathering momentum.
With Epicor--a relatively sleepy, lightly traded stock--the impact was enormous.
In the first hour alone, 14.2 million shares changed hands as the stock nearly doubled to $12 before settling back.
By the end of the trading session, nearly 23.8 million shares of Epicor stock had changed hands, making it one of the most active issues in U.S. markets. Volume has averaged about 515,000 shares over the last three months.
The shares closed at $9, up $2.51, or nearly 39%, in Nasdaq trading.
“If you’re strictly looking at numbers, then you could say there’s no basis for this, but that’s not how people usually invest in software companies,” said Vince Sheeran, Epicor’s senior vice president of marketing. “They look at what’s going to happen in the future.”
The immediate future, however, looks bleak. Late New Year’s Eve, the supplier of management software said its fourth-quarter loss will be larger than expected as it takes a charge and cuts its worldwide work force 11%.
Epicor’s software is designed to handle administrative tasks and conduct business-to-business Internet transactions for medium-sized businesses, Sheeran said.
Hymowitz has followed Epicor for a while and has made positive comments about the company in the media before, Sheeran said. He said Hymowitz has a stronger following now, which may explain the enthusiastic response to his comments about Epicor.
Throughout the day, message boards across the Internet were filled with posts by traders grumbling about Epicor and Hymowitz’s TV appearance. Some posters questioned whether the money manager was “pumping and dumping,” or promoting a stock and selling it once it peaked.
Hymowitz dismissed the claims and noted that Entrust, launched three years ago, is a “long-term investor” and manages a portfolio worth $1.3 billion in public equity markets.
On average, Entrust holds its stocks for several years, company officials said. The firm’s stake of about 3% in Epicor showed a gain, on paper, of about $2 million from Wednesday’s stock surge.
“There’s no conflict in what I said,” Hymowitz said. “As analysts or money managers, people put us on TV and ask us what stocks we like. You don’t recommend stocks you don’t invest in. We like Epicor.”
So do other analysts.
“Epicor had an absolutely dreadful 1999,” said Robert Kugel, an analyst at First Albany Corp. “Part of it was the market, part of it was fallout from its acquisition of DataWorks Corp. I’m looking for their fortunes to improve gradually over the next four quarters.”
Epicor, originally called Platinum Software Corp., earned nearly $8 million in 1998. But its profit slumped last year as companies curtailed software purchases in bracing for Y2K problems. After acquiring competitor DataWorks in December 1999, operating costs rose and revenue of the combined companies dropped.
In addition to its fourth-quarter loss, Epicor posted a loss of $9.7 million in the third quarter. The stock lost 65% of its value last year.
And despite Wednesday’s big run-up in price, the shares still are far below their 1998 peak of about $27.
In an interview, Hymowitz insisted that the company’s future is bright.
One of the key reasons, he said, is Epicor Chief Executive L. George Klaus. Klaus, known as a Silicon Valley turnaround specialist, joined the company’s executive team in 1996.
At the time, the company was struggling with losses and legal woes stemming from a bookkeeping scandal that led to the ouster of several top executives in 1993.
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Epicor on the Move
Epicor Corp.’s stock soared in frenzied trading after a money manager praised the company.
BY COMPARISON:
Total Volume Wednesday: 23,800,000
BY THE HOUR:
9:30-10:30 14,2220,200
3:30-4:30 1,204,200
PRICE RANGE
Open: $6.53
High: $12
Low: $6.5
Close: $9
Source: Bloomberg
