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Technology Stocks : FORE Inc.
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To: MetalTrader who wrote (3191)5/16/1997 10:19:00 AM
From: Glenn D. Rudolph   of 12559
 
Next year the consensus estimate for FORE earnings is $0.52 cents. I've
seen as high at $0.55 and as low as $0.40. Assuming the $0.55 is
realistic (at least I like it more) we're talking about a 35% growth and
a return on $16 equity of 3.4%. Not really earthshaking. Assuming that
growth accelerates up to 40% we are still only talking about a return of
4.6%. And if you price the stock at the growth multiple of say 35x
projected earnings you end up somewhere between $14 and $18 today and
about $28 in two years time - about a 30% annual return. Perfectly good,
but not the type of thing that makes the blood of the trade boil and
rush into the stock. Whether you value it as an earnings vehicle or a
equity growth stock it doesn't have the fire to really move upward.

Metal,

You made some excellent comments in your post and I would like to address them later when I have additional time. I do not dissagree with anything you said.

The reason I have a problem with the valuation of FORE is no one knows what FORE will earn next quarter much less next year. The analysts are all throwing darts to come up with a number. John Chambers, from CSCO, had said he never knows if CSCO will be close to estimates even two weeks prior to the quarter's end. This would be true for Eric Cooper etc. If Mr. Cooper does not know what FORE will make, how in the world will the analysts know. The analyst's projections for fiscal 97 have changed from the low 80s to the low 50s because of a slower than expected quarter. It is possible that this quarter will be back at the 15 cent range and the analyst might pick a number like 70 cents. I do not have a feel for the proper valuation of this company for the simple reason I do not believe anyone has a feel for the earnings.

Glenn
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