We went public at $12 a share," fretted Steve Heller, president of Entre' Computer Centers Inc., "and since that time revenues have gone up by a factor of seven. The number of centers we have has gone up by more than a factor of four. Our profits have gone up by a factor of 13. And the stock is selling below the offering price. You have to be disappointed in that."
This may be one of the few times in the four-year history of the high-flying computer retailer that Heller has had reason to be disappointed. Everything else about the Entre' franchise operation -- stores, sales, royalties and earnings -- has gone straight up.
But the beating taken by Entre' stock shows once again that when bad news strikes an industry, the market rarely spares individual companies.
Entre' closed Friday at $9.25 bid, down 38.3 percent in five weeks. The price was a new low for the last 52 weeks. The stock was first sold in December 1983 at $12 a share and has been as high as $19.
The computer industry, as everybody knows by now, is going through a shakeout. Sales are off, price-cutting is rampant, layoffs are common, and in the retail distribution business, small firms are folding their tents on a regular basis. In short, the climate for computer stocks is negative, and the price of Entre' shares reflects it.
The price also reflects the slowdown in Entre''s own business -- a slowdown, however, that might be likened to an auto dropping its speed from 120 mph to 90 mph. The car has slowed down a lot, but it is still going pretty fast.
What Wall Street prefers to watch, however, is not a company's speed but whether it is going faster and slower than before. The market tends to reward those companies that are picking up speed and punishes those that are losing speed.
Consider, for instance, the estimates made by analyst H. Lloyd Kanev of Smith Barney, one of the firms that handled the first Entre' stock offering and still holds a lot of its stock. Kanev expects Entre' to finish the 1985 fiscal year in August with sales of $415 million. That would be more than double the 1984 sales of $201 million -- an increase of 106.5 percent. Similarly, he expects 1985 earnings to be $1.05 per share, compared with 75 cents per share in 1984 -- an increase of 40 percent.
Under most circumstances, those results would be considered terrific. Unfortunately for Entre', those figures are lower than what Kanev and others expected. In fact, Kanev has twice lowered his estimates on Entre' performance because of changing conditions in the computer market.
Kanev's first estimate for 1985 suggested that Entre' would earn $1.60 a share on sales of about $500 million. His second estimate was for $1.35 a share on sales of about $450 million. His third estimate was for $1.05 a share on sales of $415 million.
"Sales are just sloppy out there," Kanev said. The slower sales pace at the Entre' network of approximately 260 franchised stores was accompanied, he said, by lower prices caused by tougher competition. Kanev also cited an increase in Entre' operating expenses and a lag in the sign-up rate for new franchises during the first half of 1985.
Similarly, Value Line analyst John B. Murphy also has dropped his 1985 earnings estimates for Entre' from $1.50 to $1.30 to $1.05. He has been worried, he said, by the reduced pace of store openings, which has an impact on the growth of royalty income. But new stores are being opened overseas and that will help, he noted.
Despite the gloom, Kanev said he is optimistic about the stock on a long-term basis. Noting that he "was bullish on the stock when it was $19," Kanev argued that Entre' stock is a bargain at its current price of $9.25. Investing in the face of adversity often has been profitable, he noted.
Murphy suggested Entre''s current price might look like a buying opportunity, but he said, "I don't think the stock will go much higher this year. You'd have to take the approach that this is a three- to five-year investment."
Kanev and Murphy agree that Entre' is likely to survive the current shakeout although the company faces tough competition from Computerland, the industry leader; Tandy Corp., Sears and Businessland.
"This is not a going-out-of-business industry," Kanev said. "The industry will grow. Entre' will grow."
Washington's investment community is speculating about possible bank mergers and watching as some Maryland and Virginia bank stocks rise to new highs. Nobody seems quite sure who might become the next merger candidate. But a recent buying wave was set off two weeks ago by the U.S. Supreme Court decision upholding regional mergers. Bank stocks that have seen significant price movement since June 7, are:
Bank of Virginia of Richmond, $31.25, up 5 percent; Central Fidelity Banks of Richmond, $26.75, up 13.2 percent; Dominion Bankshares of Roanoke, $35.50, up 10 percent; Mercantile Bankshares of Baltimore, $54.25, up 5.34 percent; Union Trust Bancorp of Baltimore, $74.50, up 10.8 percent, and United Virginia Bankshares of Richmond, $48, up 4.9 percent. United Virginia already has announced it will buy a controlling interest in NS & T Bank in the District.
Eliot H. Benson, director of research at Ferris & Co., has been recommending Atlantic Research stock for some time, with a buy limit of $33. However, when the stock went to $35, Benson had to take the company off his buy list.
Then Atlantic Research announced its merger with Systematics General, a deal in which 3.75 shares of Systematics General will be traded for one share of Atlantic Research. With Systematics General selling at $8.63 a share, that would make 3.75 shares worth $32.34. Thus, an investor could buy the equivalent of one share of Atlantic Research, selling at $35.25, for $32.34.
As Benson points out, the discount goes hand in hand with a small risk -- which is that the merger has not yet been completed. (Because of the 3-for-2 Atlantic Research stock split effective today, the new formula will be 2.5 Systematics General shares for one share of Atlantic Research, and the prices will be adjusted.)
The Washington Real Estate Investment Trust (WRIT) declared a 3-for-2 stock split last week, to be distributed July 12 to shareholders of record July 1. WRIT also raised its annual dividend rate from $1.60 to $1.70.
B. Franklin Kahn, president of WRIT, was questioned at last week's annual meeting about an amendment changing the rule that barred trustees from buying property or selling property to WRIT. The new rules would permit such a transaction. But it would have to be approved without the vote of the affected trustee, be fully disclosed to stockholders and be "fair and reasonable." Kahn, who told stockholders there was no intention to use the new provisions, said afterwards that the change would provide a substantial tax benefit to WRIT in the future. He said an explanation would come later.
Perpetual American Bank plans to issue about $35 million in cumulative convertible preferred stock; it will will use the proceeds to enhance its net worth and expand operations. Details will be announced later. Perpetual American first issued common stock in August at $7.50 a share, and it's been a hot issue ever since. Perpetual America closed Friday at $19.75.