Fundamentally speaking a company cannot and should not be valued at more than its forward growth.
Tech stocks have been running on air for at least 4 years now.
Rather than punishing them, the market normally allows them to catch up to their growth rates - a good example is DELL and AOL - stock which have been stagnant for essentially 12-18 months now.
HOWEVER, I do not wholly believe the fundamental school of thought, but I definitely use it when a stock just gets out of control in terms of valuation...thus, I use historical valuation.
In that measure, stocks like CSCO, ORCL, SUNW, are still out of hand even at current values.
As far as JDSU, it's off the map. I can tell you have probably never taken a valuation class (not insulting you) because nobody who REALLY knows about the stock market can justify its valuation...it's simply a momo play. The momo is gone, and now people are bailing. The losers are the ones who were sold on the "new economy" story which for all intensive purposes has been discredited.
Conclusion: Will and could JDSU become a huge company one day. OF COURSE. However, the PREMIUM you are paying for it involves SO much risk and SO much assumption that the moment the stock cracks, many people who understand the risks know it is time to get out. Eventually, you take out everybody lower in the ladder who simply see their investments going down...the last stage is mania selling...CAPITALIZE ON THAT BY BUYING GOOD COMPANIES LIKE CSCO, ORCL, MSFT, ETC.
JMHO, based on the theories that have worked well for me, I do not believe we have seen the bottom or are even close for many stocks. |
