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Technology Stocks : OCCF: Optical Cable Corp
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To: James Burke who wrote (443)6/6/1997 1:32:00 PM
From: Q.   of 545
 
Here are some thoughts on why the stock hit a new 52 week low today:

It isn't because of seasonal factors, as Kopstein's commentary in his
earnings release might lead you to believe.

Instead, it is overvalued based on p/e and p/book, and it has no
significant earnings growth to justify a premium multiple.

The following earnings record shows basically no earnings growth
in the last two years:

EARNINGS PER SHARE

QUARTERS 1994 1995 1996 1997
JAN 0.020 0.040 0.040 0.050
APR 0.020 0.050 0.040 0.040
JUL 0.010 0.050 0.050
OCT 0.040 0.080 0.060

TOTAL 0.090 0.220 0.190

Based on trailing twelve months, the eps is $0.20, and the p/e with
the stock at 8.5 is 42. With no earnings growth, it is hard to justify
a p/e of 42.

Now look at p/book. The book value of one share is $0.70, so the
p/book is 12. That's not cheap for a commodity manufacturer.

Industry observers forecast that the optical fiber market will grow at
a 15% rate between now and 2000. I learned this from the letter to
shareholders in Spectran's latest quarterly report. (Spectran is a
major supplier to OCCF.)

With a growth rate of 15%, a commodity supplier like OCCF deserves
a p/e of about 15 - 20. Which implies a fair stock price is in the range
of $3 to $4. That's above last year's public offering price of $2.50.
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