It pays to listen to the conference calls.
Granted, the contribution from I2O this year is likely to be small, but nevertheless, a deceleration in revenue growth might be indicated, as suspected by H&Q. Even Ron Abelman hinted at this by stating that the bigger the company grows, the harder it will become to keep up the growth rate. Nevertheless, new exciting products and growth in the overall embedded market could very well help to maintain Wind's growth rate.
Ron Ablemann has made that statement for the last 2 quarters, but everyone has ignored him. Don't rely exclusively on this thread for investing info!
You seem to be saying that the price change form $61 to $37 that results from dropping the 5 yr growth rate from 40% to 26% is too much and reduces the value of such an analysis. This level of change is nothing in today's volatile market - Wind's price has been more volatile than this, as you know.
Why pay 24 today when you can pay 12 in a couple of months? The 12 month high of a typical tech stock is double the 12 month low. You'll probably still survive buying at 24, but you won't maximize your profits.
I think the best way to value Wind River is to simply listen to Ron Ablemann at the conference calls. When the price was 12, he said it was "way undervalued". When it was 25 5/8, he issued convertible bonds because, "frankly, we were opportunistic". At the end of last quarter when it was around 18, he was shocked by the 1/3 drop, but refrained from declaring whether the stock is undervalued or overvalued. I think he was trying to tell us it was fairly valued, although he made a specific point of not commenting on the market action. I reckon the trading range will be 12-24 in the next year and fair value is in the middle.
As for PEGs, they may be useful for short-term trades to judge what the market perceives and guess the immediate direction of a stock movement, but I have no use for them for long-term holding decisions, where one hopes fundamentals will ultimately rule.
Wind River has about the same PEG (0.70) as Integrated Systems (0.85), RadiSys (0.64), and Phoenix (0.68). All 4 companies are undervalued, but none of them stand out. SBS Technologies (0.54) is absurdly low, as was Wind River when the price was 12 at the conference call.
You may be right in questioning the validity of a long-term holding strategy in a volatile tech stock in a rapidly developing arena, but that is another issue altogether.
I think it's best to invest with both long and short term goals. If you reach your short term goals, declare victory, treat yourself to dinner, pay your taxes, and wait for the next fire sale. Otherwise, you're stuck holding for the medium or long term. If you perform your research, you should rarely lose money. |
