Thursday, May 03, 2001

Stock Focus: Overvalued Technology Companies

NEW YORK - Though a noted bear, Paul McEntire takes a subdued tone when it comes to the question of whether the market is overvalued. The chairman of Skye Hedge Fund, a $5 million (assets) fund with long and short positions, McEntire concedes that many companies are now good long-term investments, particularly large technology companies with proven business models.

But McEntire, who holds a Ph.D. from Stanford University's engineering and economic systems department, is less charitable when it comes to companies with speculative business models, especially those carrying a large debt load. One example: Exodus Communications (nasdaq: EXDS - news - people), a provider of Internet hosting services. In its latest fiscal quarter, Exodus reported a loss of $650 million on sales of $349 million.

Exodus carries a whopping $2.8 billion in long-term debt. "If you've got over $2 billion in debt, you have $250 million to $300 million in debt service to overcome before you can become profitable," says McEntire.

The market hasn't been oblivious to Exodus' financial situation--even after a recent rally, the firm's stock is off 84% from its 52-week high.

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