I took LSI's statement that revenue would grow at 10-12% in the 3rd quarter and similarly in the 4th and computed the expected revenue. You can get Merrill's revenue estimates (quoted in your post) using something in between 10 and 12%. Initially, I thought that Merrill's earnings estimates looked very low, because LSI said (I think) to expect a 20% operating margin. When I looked more closely, I noticed that a significant fraction of LSI's earnings this quarter were from sale of securities and from interest. I assume that operating margin does not refer to this. Is that correct? I bet that if I do things more carefully, taking that into account, I will get Merrill's lower numbers.
With that estimate, and taking into account how uneven LSI has been in the 4 years I have watched them, I'm not jumping up and down to buy more (20 times next 12 months is about $30. Is a higher PE really justified? Do we really know what their long term growth rate will be?) In retrospect, the runup to near 100 was unsupported by any reality, but it happened so fast that it overwhelmed my good sense. Fortunately for my sanity, I sold enough on the way up to cover my initial investment. I suppose if I want a silver lining to this drop, I'm now more diversified because LSI is no longer my largest investment.
Ross |
