Unclewest,
As you know I am long here, but I think you are overestimating the upside in the long term.
When Rambus has 90-100% of the PC memory market, around 2002, their PC revenue will be maybe $2 per machine, and if we take a stab at PC volumes of around 150M machines in 2002, the revenue from this will be $300M. If they get an equal amount from non PC applications, that takes them to $600M. Net earnings from this could be as much as $250M if they plan their taxes correctly.
So where does this put the share price? Well of course it depends on the p/e ratio. In a mature market their revenues will simply follow PC volumes, so there is no great growth to be expected. The downside risk will be that a new technology will leapfrog them. It is hard to see therefore how a p/e greater than 12.5, corresponding to an 8% increase in shareholder value per annum could be rational. That puts the market cap at $3.125B. With the figure you usually use of around 25M shares after some dilution effects, this gives a share price of around $125.
So it seems to me that the market currently values this share quite fairly, with the assumption that there is around a 75% chance that the scenario I presented will happen.
Of course one can bet as I am doing, on the fall in p/e trailing the rise in earnings, especially if the news is spun right. I expect that the price may go higher in the medium term as the ramp becomes evident.
Where is the flaw in my logic?
Ian |
