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Technology Stocks : Cornerstone Imaging (CRNR)
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To: Mark A. Stang who wrote (241)6/17/1997 5:18:00 PM
From: Paul Haynes   of 430
 
I hope you are right about the bungee cord.

I picked this stock up late last week and based on my analysis thought I had gotten a great bargain at 7 3/8. CRNR was at 6 1/2 just before the close today. Here are some valuation numbers that I have calculated which point to this as an undervalued stock:

Book value = $4.92/share; Cash = $2.90/share
Price/Book value = 1.31
12 Months Trailing Sales Revenue = $105.1 million
Price/Sales Revenue = 0.47
12 Months Trailing P/E = 20.3
P/E for Estimated Earnings = 10.3

Growth Rate:
On historical earnings = 25%-30% (discounting 1996 Q1 and Q2)
On projected earnings for next 2 years = 35%

Price/Earnings to Growth = 0.67 to 0.81 (historical)
Price/Earnings to Growth = 0.3 (projected)

Now, let's assume that CRNR misses the $0.13 estimate for Q2 by 50% and the holds that level for the rest of 1997:

Q1 = $0.14 (already have)
Q2 Projected Earnings * 0.5 = $0.13 * 0.5 = $0.065
Q3 and Q4 = ($0.63 - (0.14+0.13)) * 0.5 = $0.18
Total 1997 EPS = $0.385
Based on the 6 1/2 share price, the P/E based on projected earnings is 16.88. By factoring in a significant reduction in earnings for the rest of the year and arriving at a P/E greater than today's P/E based on projected earnings, then the market has oversold CRNR given no new information.

I have checked the technical indicators - RSI, stochastic osc., Williams' R - and they all indicate that CRNR is a buy at this level. The Williams' R measures whether the stock is oversold or overbought. The measure currently indicates that it is strongly oversold.

The bungee has stretched a long way and is due to bounce back in my mind.

Have a great day,
Paul Haynes
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