An Excellent Success Rate
While the press has not been shy about criticizing ASP stock valuations, it's worth emphasizing that very little of that criticism has had to do with ASP product performance. Unlike some of the products mentioned earlier that took years to work out their technical kinks, the ASP technology model (leasing enterprise applications over broadband networks) has proven to be pretty flawless and very powerful. Investors will likely continue to complain about low market caps of some leading ASPs. But as the business model matures, and industry consolidation and then segmentation take ASPs mainstream, higher stock valuations will follow. While consolidation may weed out some ASPs that have poor business plans, fail to execute, or experience cash flow crises, this number will be low, if history is any indication. That's because to date only 15 to 20 ASPs out of the 1500 to 2000 in existence have encountered such difficulties. For the rest, aside from temporary hiccups in customer service and some personnel changes, consolidation has caused very little customer dissatisfaction. So it's worth emphasizing the successes of ASPs and keeping your eye focused on the long-term prospects for this industry.
Also, just to be safe, while consolidation continues, it's probably a good idea to find out how many customers an ASP has before committing to do business with it. With enough customers, an ASP won't suffer cash flow problems. If you can get an annual report and find out the amount of debt an ASP is carrying, better yet. Big debt payments are the biggest liability that can exhaust cash flow. While you're performing due diligence, you might also look for the following key indicators that an ASP will succeed.