My analysis used 3 pieces of data - not one.
I used the book value, Zack's projected earnings for 1997 and 1998, and the 32% growth rate implied by Zacks.
Whether or not you feel that WIND is awesome or that it is about to "roll over", looking at the book value alone, which is my impression of your post, says nothing about these determinants.
Reread my post and you'll see the other 2 pieces of data besides the book value.
We have all seen many companies trading at fractions of their book value, as well as many companies trading at large multiples of their book values. It seems just as useful as looking at trailing earnings. In truth, on their own, both really are useless.
You're absolutely right. You must take into account the earnings and the earnings growth rate. If you compared Novell and Microsoft, you'll notice that Novell's growth rate is zero or negative and they'll be fortunate merely to avoid losing money, so a 9 year projection would favor Microsoft.
If you really believe Wind River is undervalued, send an email message to Jerry Fiddler and ask him to use the huge pile of cash ($64m - $2.27/share) to buy back shares. If he takes your advice, you'll know that management also believes the shares are undervalued. A $32m buyback program would retire a whopping 6% of the shares, assuming their buying activity doesn't raise the price above 19 3/4.
In the last 2 years, however, they've used another form of currency, i.e. Wind River shares, to purchase other companies, instead of using the cash to repurchase shares or hire engineers to develop products. So, even the founder of the company agrees with my assessment that the shares are overvalued. |
