P/E ratios can be interesting, but just remember that they are a proxy for discounted free cash flow, which is really where the intrinsic value lies. Sycamore's margins now be artificially low given its new entry into the marketplace, the overall state of the market, and it's limited scale.
I happen to own AAPL and INTC right now, but for different reasons. I believe that part of balancing a portfolio is balancing different types of styles: growth/value, large/small, industry, regional, asset-class etc.
If you like multiples, however, at about $4.4B market cap, to me, it seems Sycamore may be trading at about 4x 2003 revenues, which is pretty light. Right now, growth projections are all over the map, however, while capex spending is down at the telecoms, spending for Sycamore-class equipment will inevitably be tremendous over the next few years.
The market is not really the risk here - its more of the competition as the market tilts toward ILECs from CLECs.
In any case, Sycamore is an excellent company, with great management and great technology. I think at these prices a large amount of the risk is priced into the stock.
Of all the companies you mention, none has the potential for growth that Sycamore has. Sycamore could have 5x its current revenues in the next 5 years, possibly 10x. That will not happen for INTC, AAPL, VZ, CA, etc.
We'll see. I am not long SCMR right now, but I have considered it. |
