Fool's Eye View

[ November 29, 2000 ]

NXT -- A Sound Investment?

By Alan Oscroft

Liverpool -- As a Rule Shaker wallah I've been digging around the ruins of the technology crash in recent weeks looking for bargains. And you know what? Despite such large falls (which often only appear large when compared with this year's high point; rarely when compared with prices from around 18 months ago), many of yesterday's darlings still look overvalued to me. But there are some quality companies out there that are a lot more sensibly priced than they have been.

Speaking of which...

I've also been pondering the arrangement of my oddly-shaped lounge, thinking "Flat speakers would be ideal in this room". So how have those flat speaker people NXT (LSE: NTX) been faring?

I've always had mixed feelings about NXT. The evidence suggests that the company's technology works rather well, but at the end of the day they're only speakers and speakers hardly figure amongst the most important achievements in the 4 billion year development of homo sapiens.

Be that as it may, if the technology is right and the price is right, NXT could make for a profitable investment. Earlier this year the technology was the same as it is today but the price most definitely wasn't right, and the prices that fad investors were willing to pay for the shares were really quite staggering.

Life-changing?

At this year's peak price of £24.70 per share, NXT was valued at approximately £1.7 billion, giving a provisional Price to Sales ratio (PSR) for 2000 of over 130. Now, a PSR of over 130 might work out as a nice investment for a company on the verge of curing death, but for the promise of a couple of extra square feet free in my lounge? Hmm.

That recent valuation was based on a large number of dependent but uncertain probabilities coming to fruition, with the chance that all of them coming good being vanishingly small.

But that insanity is behind us now and with a share price today of "just" 675p the company has a market cap of around £470m. That's not small change by any standards, and the shares certainly aren't a screaming bargain in the same league as the mythical purchase of Manhattan for $24, but they're approaching the suburbs of Rational City.

What To Look At

What do potential NXT investors need to consider? Besides the company's current financial performance, which really can't be analysed in the same way that of a mature profitable company can, it is vital to look at NXT's technological prospects through a pair of Reality Specs™ (patent pending, seeking venture capitalist to fund concept development).

SoundVu transparent thin film technology a definite inclusion in all future TV sets? Nope, cos there's plenty of space in most TV boxes for the dirt-cheap crap speakers that are all that are usually required. As a near-essential for high-end flat screen TV's? Ooh, I should say so.

NXT designs as essential in all cars? Again, most cars have plenty of spare cubic inches in their frameworks to fit conventional (i.e. cheap) speakers. But higher end cars? Yes, NXT's futuristic technology could well be a big seller.

A Good Investment, Then?

That's still a contentious question. I reckon NXT's technology will be a success (and as a hi-fi nerd of many years' standing, I really would be delighted to see a fine British company like NXT continue the fine tradition we have in these isles for fine Japanese-beating sound systems), but I reckon the company's shares are still too expensive. Not by much, mind, and high tech investors should keep this company on their radar screens.

Potential investors would be well advised to check out this excellent report of NXT's recent AGM, kindly supplied by dangeroux.

Where Next?

• Rule Shaker -- Wag That Dog
• New York History
• NXT AGM report