May 12, 2000

Market Data as of 5/12/00, 1:20 PM ET:

o Dow Jones Industrial Average: 10,655.29 up 109.32, 1.04%

o Nasdaq Composite Index: 3,601.21 up 101.63, 2.90%

o S&P 500: 1,427.56 up 19.75, 1.40%

o TSC Internet: 861.10 up 27.05, 3.24%

o Russell 2000: 497.22 up 7.83, 1.60%

o 30-Year Treasury: 100 18/32 down 26/32, yield 6.202%

In Today's Bulletin:

o Midday Musings: Data Sparks Second Straight Rally, but Volume Can't Catch Up
o Herb on TheStreet: Why Short-Sellers Think P.F. Chang's Stock Is Headed for the Steamer

Also on

Wrong! Tactics and Strategies: The Gap May Finally Be Getting Filled

A recent upgrade and strong company leadership may dig the retailer out of its hole. Tech-Tack-IPO: KPMG Consulting Will Pitch Itself as Tech Player

But a closer look will reveal untechlike traits.

Market Features: The Changing Market: Recession Risk Is Real and Markets React

A recession might not be likely, but the market knows the odds have gone up with the Fed's tightening cycle.

Mutual Funds: Vanguard to Move Into Exchange-Traded Funds

The indexing giant plans to launch five funds initially.

Midday Musings: Data Sparks Second Straight Rally, but Volume Can't Catch Up


Kristen French

Staff Reporter

5/12/00 1:17 PM ETA second round of benign inflation data this morning seemed like a good enough excuse for another rally and stocks headed right to the green right after the open.

Volume still looked pretty sleepy around midsession, and this morning's upside may be more about an absence of selling than a flurry of buying.

"I don't think anyone could really say these numbers change anything, it's just because things were oversold, just an excuse to rally," said Frank Gretz, market analyst at Shields.

This morning, the

Labor Department

said the April

Producer Price Index

came in below estimates of a 0.1% decline by posting a 0.3% drop, while the core figure, which is a better indication of where underlying inflation is moving, came in right on target at a positive 0.1%.

Some said today's session would tell whether the market actually did retest its mid-April lows on Wednesday or not.

"While volume did expand a little on Tuesday and Wednesday, I was disappointed that it didn't continue yesterday. Today is kind of put up or shut up," said Getz. "If we have successfully tested the April lows, we should be able to rally with volume...otherwise it's just another two-day rally."

Lately, the

Nasdaq Composite Index

, which nearly fell to its mid-April lows on Wednesday, recovered much of its Wednesday losses Thursday and was lately up 101 to 3600. The

Dow Jones Industrial Average

was rising 119 to 10,666.

"I think the biggest weakness has been the tech sector. Techs are very volatile, but they got cleaned the other day, so it's a natural rebound there," said Gretz.

In Nasdaq trading, techs were stronger across the board today, with boxmakers, chipmakers, software and Internet stocks all doing nicely.


(DELL) - Get Report

was having a great day, up 5 5/16, or 11.9%, to 50.

Dell posted first-quarter earnings well above estimates after the close yesterday and announced plans for a joint venture with

America Online






Other big-cap tech stocks were also flying, with


(ORCL) - Get Report

up 3 13/16, or 5.3%, to 76 3/16, and

Sun Microsystems

(SUNW) - Get Report

rising 5 13/16, or 7.7%, to 82 11/16.

Telecom stocks were benefiting from the upswing, and the

Nasdaq Telecommunications Index

was 1.9% higher.


(NOK) - Get Report

was jumping 2 7/8, or 5.4%, to 54 15/16. Internet Sector

Index was up 27.4 to 861.4, boosted by strength in





(BVSN) - Get Report





In NYSE trading, the interest-rate sensitive

American Stock Exchange Broker/Dealer Index

was getting a powerful boost from today's soft inflation data, up 2.9%.


(C) - Get Report


J.P. Morgan

(JPM) - Get Report


Goldman Sachs

(GS) - Get Report


Charles Schwab


were all helping to propel this index upward.

Elsewhere on the NYSE,


(XRX) - Get Report

was bouncing after it said G. Richard Thoman has stepped down from his roles as president and CEO and named chairman Paul Allaire to replace him. Xerox shares were up 1 13/16, or 7.4%, to 27 3/8.

Some NYSE stocks were dipping lower at midsession, particularly the consumer stocks, with utilities and paper products were also lower.

The small-cap

Russell 2000

was up 8, while the broader S&P 500 was up 21 to 1429.

Market Internals

Breadth was positive, but volume low on both the NYSE and the Nasdaq.

New York Stock Exchange:

1,568 advancers, 1,143 decliners, 517 million shares. 69 new 52-week highs, 48 new lows.

Nasdaq Stock Market:

2,295 advancers, 1,436 decliners, 705 million shares. 39 new highs, 53 new lows.

Herb on TheStreet: Why Short-Sellers Think P.F. Chang's Stock Is Headed for the Steamer


Herb Greenberg

Senior Columnist

5/12/00 6:30 AM ET


Food for thought

: With restaurant stocks, it's always just a matter of time before they cause indigestion for investors.


. That's why many shorts have

P.F. Chang's China Bistro


on their radar screen. Note I say "radar screen."

"It's too early," comes the usual response, in part because regular grass-roots checks show the units continue to be jammed. However, with nearly 19% of the stock sold short, plenty of others are betting the odds are increasing that the fundamentals of the Chinese restaurant chain, which currently has 39 units nationwide, will stumble sooner rather than later.

"If there's just one contra indicator," says one observer, "the wheels come off the momentum." And what momentum there has been. In recent months, P.F. Chang's has been as hot as the market has been cold, and it trades at one of, if not


, highest multiples in the restaurant industry: 56 times trailing earnings vs. 27 times for


(MCD) - Get Report

, eight times for

Tricon Global

(YUM) - Get Report

and 19 times for

Outback Steakhouse



What makes P.F. Chang's especially compelling to some shorts, however, is that Chinese restaurants have never done well in national rollouts; there hasn't been a successful one (at least, not yet). And P.F. Chang's is running low on cash. As of last quarter, the company had only $5 mil of cash, and it had already dipped into its $15 million credit line. Yet to accomplish the rollout of 15 new units this year, it needs at least $15 million (after taking into account internally generated cash). That means the company will either have to issue new stock (in this environment?!) or head to its banks (with rising interest rates?!).

What more, with a restaurant that operates in such a narrow niche, such as Chang's, the more restaurants it opens, the more likely it is to hit locations that simply don't work or that fail to increase body count after the first year. One example -- Westbury, Long Island -- is a notable flop. CFO Robert Vivian concedes the location hasn't worked as well as expected, but blames it on "operational" issues that he says have been corrected. (Time, of course, will tell.)

Vivian also isn't worried about cash. He says the company easily could issue more stock if it wanted, but has opted for a new $40 million to $45 million credit facility that will be in place by the end of the current quarter. He says that would be "sufficient capital" to fund the company for the next few years. What about rising rates? No prob, he says: The rate is likely to be "better" than the rate on the existing credit line.

Still, the company has warned that by year-end, comp-store sales growth could slow to around 5% from around 13% today. "We've enjoyed almost unprecedented comp-store sales increases through our entire history," Vivian says. "I've always cautioned that we don't believe we can sustain them, but I have no idea when that will change ... if it will change. As our system gets large and our stores get older, certainly comp-store sales will slow."

And that, the shorts say, is


the first sign of trouble for a fast-growing restaurant company like P.F. Chang's. Another is insider selling, such as the recent wave among top execs, including founder Paul Fleming. (Vivian says Fleming's sales are part of a deliberate plan to lower his stake to just under 10%.) Coupled with rising beef and shrimp prices, and Chang's vow to hold the line on prices, the result, say some bears, could be less than tantalizing. (Of course, this column

raised unappetizing questions about

Cheesecake Factory

(CAKE) - Get Report

a year and a half ago, when the stock was around 23; it's 47 today, with no signs of a slowdown.) It's all a matter of timing.

Herb Greenberg writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.

Copyright 2000,