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Strategies & Market Trends : Screening for Stocks

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To: B.K.Myers who started this subject	8/29/2000 1:17:20 AM
From: B.K.Myers	of 66

SUNW – More Analysis I looked a little closer at SUNW. Here is what I found. SUNW provides products, services & support solutions for building and maintaining network computing environments. SUNW sells scalable computer systems, high speed microprocessors and a line of high performance software. Mgmt Effectiveness Return on Equity (TTM) 31.15 Return on Assets (TTM) 16.34 Return on Investment (TTM) 24.14 Profitability Gross Margin (TTM) % 51.98 Operating Margin (TTM) % 15.22 Profit Margin (TTM) % 11.79 Financial Ratios: 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 Curr. Ratio NA 1.9 2.0 2.0 2.0 2.2 2.0 2.4 2.6 2.5 % LT Debt of Cap. NA Nil 2.1 3.9 2.6 4.1 6.7 8.6 17.4 22.5 % Net Inc.of Revs. NA 8.8 7.8 8.9 6.7 6.0 4.2 3.6 4.8 5.9 % Ret. on Assets NA 14.6 14.7 17.9 13.0 11.0 7.2 5.7 6.8 9.1 % Ret. on Equity NA 24.8 24.4 30.5 21.8 18.9 12.5 9.9 12.6 17.5 The current ratio has been decreasing, and is now down to 1.09. I believe this shows that SUNW is making better use of their cash and are managing the cash flow better (Increasing ROE). No long-term debt is a good sign. Net Income as a percent of revenues has been bouncing around 1997. I believe that this ratio will continue to fluctuate as Sun introduces new products. The Return on Assets has been declining since 1997 after climbing nicely since 1993. Is this a concern? Return on Equity has been growing steady since 1993, except in 1997 when it was usually high at 30.5. The only thing that stands out in the financial data that I am looking at is the unusual decrease in cash during 1997. Is it possible that SUNW repurchased some of their outstanding shares? The ROE seems to be loosing momentum, but is still very good. How does Sun’s future earning growth compare to their industry growth? Last 5 Years This Year Next Year Next 5 Years P/E PEG SUNW 31.6% 27.1% 25.2% 23.1% 131.5 4.12 INDUSTRY 22.6% 29.1% 22.1% 16.5% 82.2 3.58 Looks like analysts are expecting SUNW to significantly growth faster than the rest of the industry (23.1% to 16.5%). This is a very optimistic future outlook. Although SUNW has delivered solid results over the past couple of years, will they be able to keep it up for 5 more years? I also like to enter a company’s financial data into a stock analyzer program that I use to evaluate companies. The program uses past data to forecast future prices. It concentrates on the past 5 years data and allows me the ability to adjust P/E ratios and growth rates. Just for fun I entered SUNW’s data into the program and got the following recommendation for a BUY, MAYBE and SELL ranges: 11.5 – 47.2 Buy 47.2 – 82.9 Maybe 82.9 – 118.6 Sell So what do I do now that it is selling in the high 120’s? SUNW is currently trading at 2 to 3 times market multiples afford other companies in its industry and sector, as well as the S&P 500. Because SUNW is already off the fundamental charts, the best way to pick buy and sell prices is to use technical analysis. B.K.

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