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Non-Tech : RAINFOREST CAFE
RAIN 4.000+4.4%Jan 8 3:57 PM EST
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To: H.M. Smith who wrote (409)8/10/1996 6:21:00 AM
From: Dennis Vail   of 4704
 
Hi H.M,

There are some trends you should cosider:Revenues per store are rising,costs and expenses as a % of revenues are decreasing,net income as a % of revenues is increasing.Retai Sales as a % of Revenues is increasing.I think $0.45 a share for '96 is highly doable,with over 100% growth rate for '97 and I suspect the same for '98.On average 3&1/2 to 4 Cafes will have generated the revenues considering we started the year with 2 Cafes, enter 3Q with3,enter 4Q with 4,and end 4Q with 7 if all goes well.We should on average have 10 Cafes open throughout 1997, not counting the 2 Mex/Eng. Cafes.(7+[1/2x6] = 10 ) which will generate 2%1/2 to 3 times the net income (not even considering the trends I mention) or $1.22 to $1.35 per share.Given a recent price of $30 a share that gives RAIN a forward P/E to '97 earnings of 22-25 and if the price doubled to 60 the P/E would still be under 50 which is less (and probably by a considerable percent at that) of its '98 growth rate.

It's an old saw that when the market collapses the only thing you've really lost is the oppurtunity to have bought at a cheaper price.So if I were you,I'd go over all the fundamentals myself including eating at a Rainforest Cafe and talking to the CFO and then set you own fair value for the stock and buy or don't buy accordingly.But finish your research before 3Q earnings are released.

Regards,
Dennis
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