Rambus (RMBS) - Eagle or Penguin Message Board

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Technology Stocks : Rambus (RMBS) - Eagle or Penguin

RMBS 88.13

+1.0%

Nov 21 9:30 AM EST

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To: Mohamed Saba who wrote (32478)	10/21/1999 1:41:00 PM
From: wily	Read Replies (4) of 93625

Mohamed, This is my problem with Rambus P/E valuation models. Maybe I am completely missing something, but I've been asking this question for a while and no one has answered. Assume that Rambus earns $10 in each year from 2001 through 2005. Since it is worth $3 (book) now, that makes it worth $53 at the end of 2005. At that point, is Rambus still a valid technology? Previous DRAM standards have lasted 2 years. People were tossing around 5 years for Rambus since it is such a "big step". So at the end of 2005 Rambus has $53 X 25MM shares = $1325MM PE usually reflects a company's return on equity. What return can we expect from 2006 onwards? How will Rambus be making money then? If they invest wisely, maybe an optimistic 15%? Then: 0.15 X $1325MM = 199MM = $8/share And since PE = ROE, PE=15 so: $8 X 15 = $120/share in 2006 Where am I going wrong here? w

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