Bob, I was not recommending LLTC which I agree "looks fairly priced to a bit on the high side", but just using it to make a larger point about technology investing. (XICO has a much better reward/risk, in a much poorer company in the analog mixed-signal area, now run by a former LLTC guy.)
As far as Murphy goes I never bought that line about adding R&D to earnings.
-For a well-established company a long string of R&D created the current earnings and is necessary to create future earnings. Thus, unless the level of R&D to sales has been increased materially, I see no reason to make any adjustment.
-As far as young development stage companies go, his point has some merit. If you could identify the ones which won't fail, then using R&D expense to help anticipate the stream of earnings that will result, is a sensible way to help establish valuation. However, the first step is to establish the ones that will succeed, which is beyond the ability of 95% of folks, and certainly Mr. Murphy.
However, I am sympathetic generally to the idea of looking at everything about a company that might make it a better "value" than it might otherwise seem. It often isn't just a strong balance sheet. For example, new management with a lot of options, reasonable salary and a proven track record sometimes turns out to be the most valuable asset a company has. |
