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Technology Stocks : Brocade Communications Systems,Inc. (Nasdaq-BRCD)

BRCD 12.73

0.0%

Nov 20 4:00 PM EST

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To: ChinuSFO who wrote (898)	5/3/2001 10:19:58 AM
From: MGV	Read Replies (1) of 1583

To get to $70, fundamentals would have to improve enough for 2001 and 2002 forecasts to increase. Current consensus for 2001 is around $0.30. At $70 BRCD would have a 2001 P/E if 233. The market won't give that valuation to a company with proyected annual growth in 2001 of about 55-60%. Consensus for 2002 is about $0.55, giving BRCD at $70 a P/E of 127 - still too rich to expect. At current consensus, its unlikely to expect $70 this year. To get it, BRCD would have to show upside to FY 01 numbers. If they could do 0.35-0.40, numbers for 2002 would increase as well, maybe to the 0.70 - 0.75 range. At 0.75 and $70/share the P/E is 93, not unreasonable based on high double digit revenue growth, assuming competition does not erode profit margins but, no better than fair value, at best. The reason is that valuation metrics have changed for teh foreseeable future in technology. Rule of thumb will be fair value at 1 to 1.25 PE/G. In a bull market, valuation goes above fair value. In a bear market, it goes below. BRCD trading at $70 this year is unlikely. They would need too many things that are not visible - estimate increases, pricing power, and timely delivery of new products just announced. It also will be vulnerable to news flow on Gigabit ethernet products by competitors. Though I don't think the technology risk of GE is high, the perception will put a lid on BRCD.

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