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Technology Stocks : Rambus (RMBS) - Eagle or Penguin
RMBS 105.01-5.1%Nov 11 3:59 PM EST
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To: unclewest who wrote (30069)9/21/1999 11:07:00 AM
From: FLSTF97  Read Replies (2) of 93625
 
I've dragged this over from the Gorilla thread, as it is perhaps more appropriate here. It is also a kind of best case sanity check.

I understand your comments and that in the past no gorilla was ever undervalued, but does that mean it can never happen?

For the record I think that RMBS has more potential for achieving gorilladom than anything else I have seen
mentioned here. The problem is it takes(for me) a huge leap of faith to understand that their stock will perform
analogous to other gorillas.

Let me assume the extreme for yr 2003:

DRAM market= $50Billion
RMBS captures 100% market share
Royalties average=2%
Net profit ratio before tax= 75% (does anybody know of such a beast anywhere?)
Tax rate=40%
If I crunched the numbers correctly that means profit of $440 million in 2003.

So what PE should be assigned (remember they can't grow market share, royalties are already negotiated so they
are constrained to the total DRAM Revenue growth)? I propose at most 10x because even the most aggressive projections are showing barely 10-11% CAGR growth.The manufacturers are in a commodity business where they earn money 3 out of 10 years and when demand spurts are cash constrained to build those $5 billion new fabs.

So my market cap is $4.4 billion compared to today's $2.2 billion. Not bad, I'll take a 2x in 3 years. I just have to
believe that absolutely everything goes right!

Can somebody here set me straight?
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