Doug,
Thanks for your comments. I would not be surprised to
see NTRO achieve 50% sequential growth in revenue for
a few quarters (which would translate into an annual
growth rate of more than 200%) but I would be surprised
to see them keep up this growth rate for an extended
period of time. Traditionally, fundamental analysis
(for the purpose of securities valuation) does not
look at the growth rate for just a few quarters but,
instead, it looks at the sustainable growth rate
over an extended period of time... typically, 5 years.
Moreover, that 'long term' sustainable growth rate
is traditionally more highly valued if it is highly
predictable so that it doesn't come with a lot of
fluctuations along the way.
The telecom equipment market overall is predicted to
grow at an annual rate of just 32% for the next five
years; wireless will probably grow faster than that...
I'd venture maybe as much as 45%. Now NTRO is small,
so it may grow faster than its sector... so I may
generously/optimistically assume that NTRO will achieve
a 60% annual growth rate over the next 5 years... but I
simply can't see it growing at a 200% rate for very long.
I took the 30% annual growth rate assumption from this link:
biz.yahoo.com
Presumably, this represents the considered opinion
of a bunch of well-informed analysts who follow NTRO.
If we took this (highly optimistic) 60% growth rate
for our calculations we'd find the P/E/G is "only" 3.2
[I recently read at The Motley Fool that a stock with a
P/E/G of 2.25 or more should be considered overvalued]
but the P/E would remain at an astronomical 189.
Still, you could be right.. it could be that the market
is valuing NTRO based on an assumed 200% annual growth
rate. Moreover, the market could be ignoring analyst
predictions that NTRO will lose $0.25/sh this year (Dec'00)
and earn $0.24/sh next year (Dec'01)... instead the
market could be substituting more bullish EPS estimates.
If so, is the market right? (Yeah, yeah, I know... its
right by definition - in some sense.) What is it that
the market is seeing that the analysts aren't seeing?
Again, thanks for your comments.
Rob |
