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Selling Sycamore Networks (SCMR)

September 15, 2010

Shares of SCMR have now reached my sell target price ($28-30), and I have just liquidated my position. Of course, the share price could rise from here (and probably will), but I have no real justification for holding. My purchase thesis was based on SCMR’s large hoard of cash and marketable securities, not any special understanding of its operations. I liquidate with some ambivalence. On the one hand, the share price has risen to my target in such a short time – a little over 3 months – that the investment has provided an incredible return on an IRR basis. On the other hand, there has been too little time to evaluate whether a change in the operating business justifies a target higher than my original one. Only two items of real interest have been announced regarding SCMR since my June investment. The first was that the UBS analyst came out and upped his recommendation of SCMR from ‘hold’ to ‘buy’, but only after the share price moved up from $16 and change to almost $20 per share, citing the cash and marketable securities it holds (I’m not sure this was exactly news to most of us). The second was the early August earnings announcement, which really made the stock jump; significantly higher-than-expected earnings of five cents a share in the latest quarter vs. a loss in the same quarter last year. Yep, that’s right, $.05 per share made the stock jump 20% plus!

I have to say I just don’t get Mr. Market. In June he was willing to pay me $6 a share to take ownership of SCMR and now in September he’s willing to pay me $6 a share to buy back that same ownership. Just goes to show you how crazy he is.

To SCMR I say “So long old friend, we hardly got to know ya”, but my sadness is tempered by the clinking of a few shekels. Now if only Mr. Market will serve me up another doozy … and I’m able to recognize it!

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From → Positions Closed

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