Oclaro, Inc. (Avanex-Bookham) Message Board

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Technology Stocks : Oclaro, Inc. (Avanex-Bookham)

OCLR 8.260

0.0%

Dec 10 4:00 PM EST

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To: The Ox who wrote (1879)	7/8/2001 12:34:07 PM
From: dday	Read Replies (1) of 2293

"Price to sales ratio around 7x!!" A bit late is responding to this but my 2 cents worth anyway. PSR's are a valid fundamental measurement for tech companies. And I would generally agree that 7x is a bit too rich for most. I think, however, that you do have to use some 'projections' in assessing this measurement. Sure, $18 mil. x 4 = $72 mil. That divided by # of shares @ est 65 mil = a little over $1 per/share in current revenue. Let's call it $1 even fully diluted for arguments sake. Let's consider what revenues might look like in 2 to 3 years. Let's assume by 2004, AVNX is now doing $325 million annual run rate. (I am pulling this # out of the air for illustration purposes only). Now we have $5 per share in revenue and at 4x revenue a $20 stock. A triple in three years is an excellent ROI imho. Of course, if you subscribe to the perma bear theory that predicts a total collapse of US economy and global depression with no relief in sight until 2010, then you should bury your cash in a big mattress. <gg> . Simply speaking, PSR measurements (and I am a big fan of them as a tool and have used them extensively for 18 of the 21 years I have in this biz) must be placed in context and not used arbitrarily. Retailers have lower PSRs than drugs etc. It was my miscalculation of PSRs that made me avoid stocks like MRK (always traded at a PSR of 7 compared to other pharmas at 2-4x) and Microsoft in the late 80's/early 90's. Couldn't justify their PSR's and avoided the stocks as 'too rich'. Big mistake. Seems to me that market share, switching costs, barriers to entry etc. (gorilla attributes) can justify higher PSRs as they have sustainable competitive advantages. The jury is out on AVNX in that regard but, from all I have read and assimilated, it seems they have a strong position in their core competence. Just some thoughts. Best of luck. Regards, Bob

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