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Andrew T. Gillies is Director of Communications at the Center for Audit Quality, an affiliate of the American Institute of CPAs, in Washington, DC. Based in Washington since 2002, he has also worked in editorial and communications roles at the Investment Company Institute, the World Bank, Forbes, and Vault.com. His policy-themed writing has focused on aerospace and defense, energy and environment, transportation, and financial services.

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.

Full story at Forbes.com