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Sunday, November 13, 2011

some thoughts... FIO

I was going to post this over the weekend, but hesitated because it was such a speculative name. Since Steve Woz was coincidentally on CNBC, I figure I just send it out.

FIO - Fusion-IO is an interesting company, but it is a momentum stock with a small number of common stock.  With a stable market, and a strong earnings report, FIO was able show a break out. But that break out got halted with a secondary offering, that will pretty much double the amount of common stock available.  

This is a momentum stock, so a traditional fundamental assessment simply will not hold up, and it runs the down side risk it has seen from August to Oct.  Where the action was technically driven downward, and with the turning of the market, FIO's action was technically driven upward.

Fusion-IO is a bit more complicated to understand because it focuses on the back end technology application that most of us do not see or care about.  Its applications can be applied across the board within data centers and wind is at its back. FIO is a play to a sector sift toward to solid state devices, and is a back-end play on Big Data (Web 3.0).

The trick, given its small momentum status, is to find out what the appropriate market capitalization is for this company.  This process becomes more difficult because a lot of the data center names got bought out by HP, Dell, VZ and other big companies over the years.  The only relative plays I could find as public companies are NTAP and EMC.  NTAP has a $15B market cap and EMC has $50B.

(below is info added today)
From the macro fundamental perspective, FIO can definitely be a double from here.  But before it doubles, its trading will be subject to heavy technical analysis and sentiment driven trading.

In the attached video, Woz discusses the potential, but because it is on the back-end, the normal person would not see it.




Here is an updated chart:

 The trend is holding up, and despite its run, FIO is consolidated.  However, if market sentiment is still 'iffy', FIO may chill around here.  Although, as market sentiment shifts, or positive data emerges from its business, it will continue to run. (But I would love to pick some up near its 50SMA.)

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