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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: Apollo who wrote (29813)8/11/2000 1:49:17 PM
From: StockHawk  Read Replies (3) of 54805
 
>>some of the older hands here on SI are speculating that the fiberoptics companies are way overpriced, and the balloon will soon rupture, in the same way air came out of Qualcomm this year...How can we distinguish between [whether]JDSU/SDLI will continue to climb, versus determining when a Q is overpriced?<<

I too have been wondering about the valuation of JDSU, which I own. A comparison with QCOM seems inevitable. Of course there are many differences. JDSU's growth is incredible, albeit assisted by acquisitions; while QCOM was doing divestitures. QCOM is in battles over standards. Q is a Gorilla, J is a King. Q has patent protection. But ignoring the differences for a moment lets take a peak at market caps.

After the Sept. 99 quarter QCOM had trailing four quarter sales of $3.94 Billion and a market cap of approximately 104 Billion on say 12/29/99 or 1/25/00 (closing price of $140). At those times the stock was selling for 26 times sales. On 1/3/00, the day of the all-time closing high of $174 the cap reached 130B, which was 33 times sales.

For the most recent 4 quarters JDSU has reported revenue of $1.43 Billion. With today's market cap of $92B that puts them at 64 times trailing sales. (please check my math)

JDSU looked like it was falling when the S&P 500 "saved" it.

Lindy asks "what could go wrong?" With a company doing serial acquisitions, running at screaming growth rates? How many companies have been derailed by one too many acquisitions?, and who ever heard of a company faltering because they could not keep up with sales?

I'm not suggesting that anyone sell JDSU, but I think its valuation is an important issue that should be discuss further here.

And as for SDLI, arb plays are some of the most risky around. Sure people made money on ETEK or TV Guide but what about MCI/Sprint or Tellabs/Ciena.

StockHawk
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