Beware of the 'Best Play' trap, page-5

FYI, here's what they published in reaction to the announcement and price fall yesterday:

Silex takes a tumble

BY: Gaurav Sodhi
READING TIME: 2 mins
We didn’t see that coming. Just a week after extolling the virtues of Silex Systems and upgrading the stock to a Speculative Buy, the company came out of a trading halt with news that sent the share price plunging 40%, shattering the office record for the swiftest fall following a Buy recommendation.
GLE, which is charged with commercialising Silex technology, will close two test centres and bring all testing into a single facility in the US. GLE also noted persistently poor conditions in the enrichment industry and hinted that commercialisation would be delayed. The market dumped the stock.
Is this an overreaction? We think so.
It's no shock that the enrichment market is oversupplied and likely to stay that way for some time, as we explained in our initial review. But news that GLE is likely to delay commercialisation confirms the previous timetable for revenue generation wont be met. That lowers the value of Silex as any royalty stream is worth less in today’s dollars. So the share price deserved to fall – a little. Today’s decline, however, appears excessive. Although the news says nothing about the likely success or failure of laser enrichment, the current price suggests the market is extremely pessimistic about its success.
The market capitalisation of the business is now about $95m and it carries net cash of about $70m. That means the potential royalty from laser enrichment is being valued at just $25m. There is still a chance that Silex will sell its solar business for a few million and, as we previously noted, Silex has no capital expenditure liabilities. The company can patiently wait as conditions in the enrichment industry normalise.
Poor industry conditions are responsible for the miserly share price, but they're also our source of opportunity. Just two years ago the market valued this business at over $500m. At its peak, it was valued at over $800m. The value was wrong then, and we think it's wrong now. That’s not to say we’re certain about success. We aren’t. The outcome here is binomial. If it works, investors will enjoy stellar returns; if it doesn’t, they will lose. We aren’t making a prediction about likely success but we are being well compensated for taking on risk.
If you’ve already bought in, we don’t recommend doubling down. If you haven’t, the payoffs are better than they were. With the share price down 38% since Silex: fission for opportunity (Speculative Buy - $0.90), we’re lowering the prices in our recommendation guide slightly to account for the time delay and sticking withSPECULATIVE BUY.