Gene - you're not alone. It's easy to have doubts when a stock rises so far so fast and when the company is so dependent on one major customer.
As someone else pointed out, the PE of 200+ is a bit misleading since it's based on trailing earnings of $0.36 comprised of quarterly earnings of ($0.07), $0.05, $0.10, and $0.25. You're probably better off looking at a PE based on this years' total earnings - currently estimated at $0.80. Since the price is around $82, this means they currently have a PE of around 100 based on FY99 earnings.
The PE is only useful if you compare it to their rate of revenue and earnings growth. If they have 3Q99 revenues of around $40 million, this will represent QOQ revenue growth of around 82% compared to 3Q98. As someone else mentioned, it's easy for earnings growth to outpace revenue growth as long as the gross margins holds or expands and the company holds the line on expenses. Therefore, it's reasonable to expect the rate of earnings growth to exceed 100 percent. So, what we've got here is a company with a PE of around 100 that's growing at around 100 percent.
Right now, there's no doubt that HLIT is a bit of a momentum stock. This isn't necessarily a bad thing - in fact, it's a good thing as long as they can continue to produce sequential increases in revenues and gross profit margin. Will they do this for one more quarter, or 10, or 20? I don't know. This is where the fear comes in, because it will likely get slammed pretty hard once one of these two elements is missing. |
