Correct. Earnings will be up more than 30% over the next year, but they are saying the stock will only be up 30% from these levels.
Seems to me they are validating the quality of the business while at the same time acknowledging (implcitly) that the shares are overvalued.
Since the board is relatively quiet, I will now engage in some speculation:
I have been thinking about what SEBL's maximum possible market cap and stock price will be before it drops off (due to the unfortunate nature of the licensing model) like the ERP vendors did in '98. I think 2003 (at the latest) will be the peak for SEBL's mkt cap before the firm misses a quarter.
This year, the firm will likely do about $1.6B in business (give or take $100M). Assuming 80% revenue growth in 2001, 70% in 2002 and 60% in 2003, this means that the firm will do just under $8B in 2003. (I know many people project higher, but I'd rather be conservative).
Right now, the market cap is about $44B. Assuming FY00 revenues of about $1.6B, this means the stock is trading at around 28x this year's revenues.
Assuming an ongoing decline from these rich valuations, between now and 2003, I figure SEBL could trade at around 18x revenues in 2003. I know this is still rich, but I also figure that as SEBL gets larger, it will trade at a premium to the market and the sector.
This gives me a peak market cap of around $144B. With today's 400M shares outstanding, this implies an approximate price of $360 per share (not including splits) by 2003.
One adjustment: shares outstanding will continue to expand as employee stock options vest quarterly. So I will assume a 5% dilution (20M of today's shares) every year for three years. This means that instead of using 400M shares, I will divide the market cap of $144B by 460M shares. This gives me a final share price of $313 in 2003.
In conclusion, SEBL's market cap will more than triple and price per share will triple from these levels if these calculations are right.
Any thoughts? |
