Article by Michael Price
I have always believed that one of Trimbles strong points was its spending on R&D. Michael Price wrote an interesting article for II that states "a new way to value tech stocks". He uses a value called Growth Flow. To calculate the Growth Flow divide R&D spending for a particular year by the number of shares outstanding, and add that figure to earnings per share. Looking at last year's figures:
1997 Figures:
R&D - $41,000,000
Shares Outstanding - 23,000,000
Earnings/Share - $0.42
$41,000,000/23,000,000= $1.78 + .42 = $2.20 (growth flow number)
Price says to determine if a company is fairly priced divide the stock's current share price by the growth-flow number to get its "price to growth flow".
$12.44/$2.20 = 5.65 (price to growth flow)
Price says that "historically, stocks trading at 10 to 12 times growth flow per share are fairly valued. Seven to eight times is getting cheap. And five times or less is very cheap".
From this valuation the stock looks like it is trading at a little over 2 times the growth flow per share. This should put the stock in the cheap, cheap range.
jamse |
