I think the analysts lowball all the numbers as a matter of course. For example, based on management's revised guidance, analysts have upped their estimates for Q2, mostly to the 30/31-cent range I think (HQ is at 30). But look what management actually said:
"With regard to pro-forma earnings per share, we expect to exceed Q2 estimates by approximately 24 percent or better, representing sequential growth in pro-forma operating profit of approximately 58 percent."
That is a direct quote from Mike Foster, SDL's CFO, from a PR on their web site. I think he was pretty careful about how they phrased this: "exceed Q2 estimates by approximately 24 percent or better". He didn't say "beat average estimates", just "estimates"; and he didn't just say "24 percent", but "24 percent or better". Which to me means they will beat the high estimate by 24%, and every lower estimate by "more".
I think the high estimate before the PR was around 27 or 28 (don't have access to first call, so can't tell), but the average was around 25. Now, 24% above 25 is 31 cents, and you can see that most of the analysts revised to 30 or 31 cents. But 24% above 27 is about 33 1/2 cents--rounded to 34 cents. And that is the figure I believe they are stating. That is also consistent with Foster's quote: "representing sequential growth in pro-forma operating profit of approximately 58 percent." Now, Q2 pro-forma was 22 cents, so 58% better is 34.76 cents. I believe that is the floor Foster is placing for this quarter's EPS. You can see that 34.76 is more than 15% greater than HQ's figure. Now either I interpreted this wrong, HQ and all the other analysts interpreted it wrong, or they are lowballing on purpose.
HQ's estimate for Q3 is just 33, and for Q4 is just 35. If my interpretation of the above is correct (I don't see how many different interpretations you can have of "representing sequential growth in pro-forma operating profit of approximately 58 percent"), then SDL may actually do 35 cents this quarter (Q2). Now if they do 35 cents this quarter, all the analysts will have to revise their numbers again. I think this ritual is repeated as long as a company is growing extremely rapidly.
I don't think the analysts are so stupid that they can't use a calculator, but it is not really in their interests to stick their neck out. Also, it is not in management's interest to make loud proclamations about how much their business will grow a year from now. As a result, forward-looking figures are subdued. But that does not mean the market believes the reality is so subdued, and therefore the stock gets bid up. It looks expensive based on what analysts and mgmt. will say in public, but each quarter the formerly expensive-looking price now looks kind of cheap, and the stock gets bid up to another expensive-looking price.
I don't know how to forecast 2001 results, but we have the quarterly results to look at. If rev. growth stays over 20% QoQ--especially 25% QoQ--I believe the trend is still very good.
JMHO |
