There are some rational posters on this thread, and I have to agree a little with lots of thinking and disagree a little with a lot.
Is it way overvalued? Maybe, but comparing a company in a position like JDSU to Dell or Amazon or Aol is not valid.
Is it possible the stock gets cut in half in a bad market? Or even worse? Sure it is. But I haven't met a SINGLE market timer capable of calling the top AND the bottom. There are reasons why the greatest investors of all time did very little trading.
But let's discuss valuation. JDSU is extremely expensive on a forward PE basis. For now, for argument's sake, let's assume JDSU earns $1.30 in CY 2000. At $90 that's roughly 70 times forward. Wow!!! Spendy!
But saying JDSU is expensive and comparing it to Dell, Amazon or AOL is downright silly.
The PC market is a maturing business. Dell may be taking share and is a great manufacturer, but they aren't the dominant merchant supplier in a market that has enormous growth with significant intellectual property content. The PC business may grow at 15% compounded over the next 5 years....may.
Amazon isn't even worth discussing, commodity retailer, no control over product, end of story.
AOL is tougher, but it clearly has some internut valuations, but it is a repeat revenue story, but won't grow in proportion to digital communications traffic.
The potential growth in data communications traffic over the next 10 to 15 years is mind boggling. There is no way to tell who the winners will be in the consumer Internet business, but it is pretty easy to project the potential for the data communications business.
The data infrastructure market is currently around $60 billion per year. The analog telecom infrastructure market is around $800 billion per year. I don't know exactly how big the cable infrastructure business is currently, but it is large as well.
The data communications market will swallow all analog infrastructure businesses and grow in proportion to Internet usage. Over ten years it's probably a 30 bagger opportunity.
JDSU is in a unique position in the market. Do you know how many fiber component startups there are? Do you know why there aren't any?
In addition, when owning JDSU, you must evaluate the opportunity presented by creating integration between Uniphase's active components and JDS's passive components. The integrated subsystems will generate more revenue per channel at higher margins yet be a lower cost faster time to market solution for their customers. Win, win, win. And these potential products aren't in the estimates yet.
Now, size the market for long haul fiber, Uniphase is still in the early stages there. Probably enough to sustain 40% to 60% growth for at least 3 to 5 years.
The metropolitan area? The connection density grows enormously, I'd bet that market is at least an order of magnitude larger. Don't even bother to try to quantify the local loop, but also a magnitude multiplier larger than metropolitan.
In my opinion, anyone buying this thing that has no capability of handling this stock at $40 shouldn't be in it.
But to anyone calling the top at $90, you may look really smart right now, and like a genius in the fall. But can you call the bottom? Can you be positive there will be a massive correction? Who knows?
The only thing I'm pretty sure about is that anyone selling out now has a good chance of regretting it in two years. Anyone buying now and viewing it as a sure thing is foolish too.
JDSU and a few others remind me of Cisco and Intel from several years ago. They were good long haul bets, but there has been plenty of volatility along the way.
TD |
