"...I didn't see any claims like that in this thread. However, Juniper, along with many other G&K candidates discussed here, could still be great long-term investment even though they would never appreciate as much as Cisco did."
John -- you're right about the claims part...people on the G&K thread are much more sane. I should have saved the rant for the Yahoo board.
But I still don't think JNPR isn't attractive at THIS level -- $200 a share is too much. Let's kind of "reverse engineer" JNPR's FY2003 prospects using your growth assumptions from your message # 30406...
"...I said that Juniper would reach 4 billion sales in 2003 if it grows AVERAGE 100% annually. For a company that is going through hyper-growth phase, this is possible. Considering your argument that sales growth tends to slow down, I figured that Juniper could still have 4 billion sales by 2003 even if its growth rate drops 50% every year (ie: 500% in 1999, 250% this year, and 125%, 63%, 32% in subsequent years)....
First, let's assume you're right. Let's say they reach 4-billion in revenue in 2003...and grow at a 32% clip thereafter.
FY2003 revenue....4.0 billion
Now we have to arrive at some multiples and levels of profit to figure stock value in 2003.
First, let's look for profits. JNPR current net margin is 8.35%...and CSCO's is 14.4%...so let's say -- due to competition -- that their margins gravitate towards one another, and JNPR's net margin increases to 11.8%
11.8% of 4 billion revenue = 472 million profit.
We're already assuming a 32% growth rate moving forward...so let's assign them a more-than-generous PEG ratio of 3...giving them a PE of 96.
96PE X 472 million profit = 45.3 billion market-cap in 2003...and JNPR's current market-cap is $62.7 billion -- which would representing 28% decline in your investment.
So if you're right about the 4 billion revenue -- and I'm right about the $472 million profit -- JNPR is going to need a PE ratio of 253 in 2003 for you to double your $$$...and that's highly unlikely for a company anticipated to grow at 32% a year thereafter.
Going on using the 32% growth number, revenue in 2010 would be approximately 28 billion.
28 billion X 11.8% profit = 3.3 billion profit
3.3 billion profit X PE96 = 317 billion market-cap...which would give you about 17% annualized return on your 10-year investment.
Personally, that seems like a great deal of risk for that kind of return. But actually, this is probably an optimistic forecast, because in truth, JNPR's market-cap would probably have to grow to the 500-600 billion level for that kind of return. Why? Simple -- stock dilution.
Let me refer to CSCO again to explain.
CSCO initially had about 12.5 million shares at their IPO. Because of splits...thoses shares grew by a factor of 288...to 3.6 billion shares. But CSCO currently has about 7 billion shares outstanding. So where did these extra 3.4 billion shares come from? -- Employee options, shares issued for some 50+ acquisitions, and maybe even a secondary offering or two. A lot of people tend to overlook stock dilution when projecting future value.
td |
