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Technology Stocks : JDS Uniphase (JDSU)
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To: Jacob Snyder who wrote (20598)6/21/2001 9:04:16 PM
From: KMcKlendin  Read Replies (2) of 24042
 
Hi Jacob--

The numbers that I'm using: P/S=3.2, non recessionary P/E=18, P/B=~2.5 (all at my buy price of 10). These take some some explaining.

1. P/E=18. I believe that you cannot value a company by forward P/E during a cyclical downturn, because it is temporarily depressed, and thus does not reflect the growth potential. For example, during a bad downturn a P/E ratio may be become incalcuable as the company looses money. The method that I use is taking the last quarter of "normal" earnings and annualizing it. This gives me a conservative estimate of earnings when the industry recovers. For JDSU I am using last quarter's pro forma income of 0.14, giving me a P/E of 18.

2. Another way is to value stocks at the bottom is using the P/S. This requires some knowledge about historical P/S ratios for the stock and the industry, and anticipated net margins going forward. A P/S of 3.2 appears historically cheap for JDSU.

3. True book value is difficult to assess for JDSU. Cary's analysis suggests a conservative estimate is ~$4 share. (http://www.siliconinvestor.com/readmsg.aspx?msgid=15971620. Therefore, P/B is roughly 2.5.

I know all these ratios will be temporarily worsened by the current slump. Yet I believe that this analysis is a fair way to assess fundamental value given the assumption that growth will prevail in JDSU over the LT.
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