Ok, my UARM pitch was made anonymously (only the writeup) and addressed by a major investment management firm that will not be named here. I was unable to respond given the nature of the presentation, but will take this space as an opportunity to paste an email response that I distributed to the investment club post-presentation:

Alpha,
Andrei here—I noticed that turnout was very light for the Alpha meeting (long day, competing commitments, only 1 pitch, etc…)—however, many more were at the presentation by ***. For those of you who will vote having only seen *** respond to my anonymous UARM pitch, I felt that I would take a second to just address some of the issues that they brought up, something which I did not feel was appropriate at their meeting:

Criticism: “That Goldman Sachs took this public is, what I consider, to be an invalid investment point. Trust me, Goldman Sachs will DEFINITELY take a company public then have them disappoint Wall Street.”
Answer: Of course they will and of course they have. However, when making a trade, you think differently than when making an investment and Goldman taking UARM public this strong holiday season is just part of a qualitative mosaic that bodes well for UARM. Incrementally better that their banker was GS than a regional bank out of Baltimore when it comes to whether UARM has their financial house in order, have been coached well by their bankers and are poised to have a good Q4.

C: “This model is complex and appears to make unexplained assumptions about gross margin trends/tax rates, etc…”
A: This is not an exercise in creating a perfect model that leaves us with a ***-friendly modified FCF number to justify owning UARM for 4 years. This idea is a trade, nothing more. As a result, the model serves one purpose—it helps me understand the risk side of the risk/reward equation. How? By building an approximation of a sell-side model, I get a sense of where street numbers may come out and what published target prices may be. I believe that $.75 in ’06 and $1.00 in ’07 are reasonable earnings estimates. These numbers and a nice multiple (awarded due to great growth) make me think that downside risk is low while UARM is in the low $20’s. I believe price targets will be in the low $30s.
That is all- consider it an intellectual exercise. High growth + real earnings + under-covered = potential for favorable analyst notes. That makes me sleep better at night, and building the financials helped me visualize how someone at Goldman could approach this from a modeling perspective. This model was built off just an S1, no roadshow access, no quarterly reports, no conference calls, etc… it is not supposed to be definitive, just illustrative and useful in conceptualizing the downside risk, not for pegging an upside target. I encourage anyone interested to play around with it. http://www.geocities.com/muresianu/UARM.xls

C: “This model appears wrong, I haven’t read the S1, but I think that there are 4m shares unaccounted for.”
A: I have read the S1- twice- based on UARM’s discussion of the 3:1 conversion of preferred stock into common stock and, more importantly, their published pro-forma share count estimate post-IPO, I am pretty sure that share count is correct. If someone wants to point out where I am missing 4m shares, I would love to learn, but otherwise I would encourage you to disregard this critique.

C: “If you want to invest in ideas like this, you need a lot of them and will probably have a low batting average.”
A: I am not trying to change the core strategy of our fund- but hopefully we can invest in lots of different ideas and different strategies and this is just an interesting trade that we will know the outcome of by second week of next semester. I’ve invested in plenty of ‘medium-conviction’ trades over the last 2+ years with a very good ‘batting average.’

C: “In the short term, the market is a voting machine, in the long term, it is a weighing machine.”
A: Ok, this came up in the morning, not regarding my pitch, but it seemed to frame the evening’s criticism of UARM. I am betting that UARM wins the most votes in the post-Christmas popularity contest when it shows up on the radar screens of mutual fund managers that currently under-own the stock. That is all- there is some modeling done here to assess the downside risk from the ‘weighers,’ but, essentially, this idea comes back to the issue of limited supply of a fast-growing name and great demand for that in the market. To that end, I’ve done the qualitative work, this brand is hot, I own it myself and I’d love to own it in the fund as we find out what the upside potential is. Because this position is more “speculative” than most that we deal with, I have suggested that our first purchase be only $2,500, or half of our normal position size.