Dennis,
<<Could someone who has watched this industry more closely then me comment on whether this sector typically goes below book value? Current cash is $4.71 and book is $9.46. >>
These notes are from reorts by Gillian Munson at Morgan-Stanley re: value. Hope they help.
April 14,98
On an overall market note, disk drive stocks continue to trade well above historical lows which is somewhat risky but in our opinion
driven mostly by a tech market scrambling to put money to work (note that the low market capitalization/L12M revenue and price/book for the industry was 0.25 and 1 - both in C1991). If the tech market were to give way, we believe that disk drive stocks could have relatively
severe downside from here.
April 8, 1998
- DISK DRIVE STOCKS STILL LOOK EXPENSIVE ON HISTORICAL BASIS. Disk
drive stocks are down a lot from their highs. However, the drive
stocks still look somewhat expensive on a historical basis.
Typically, in down cycles, the best time to buy the disk drive stocks
from a value perspective is 1 times book value (last low in the summer
of C1991). However, QNTM, SEG, and WDC as a group are trading at
roughly 2.7 times book today on average. A similar overvalued
situation exists if you examine the stocks on a market capitalization
to revenue basis; historically the low has been 0.25 and the stocks
are trading at 0.56 today.
Best,
Stitch
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