Extrapolations of WAGs:
Assumptions:
1. JDSU makes 2B in sales in CY02.
2. The stock returns to the pre-bubble valuation ranges in 2002 and thereafter.
3. P/S is a useful valuation metric to use for JDSU.
4. 1995 was a representative pre-bubble year.
Then:
The 1995 P/S range was 1.1 to 3.6
2B sales/1.34B shares X 1.1 = 1.6
2B/1.34B X 3.6 = 5.4
Conclusion: I expect JDSU to trade in a range of 1.6 to 5.4 in 2002. The stock is still overvalued today.
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Yes, P/CF = stock price/ cash flow
I got my historical ratios from Baseline Company Profiles (subscription service, I don't know anywhere it's available free).
JDSU did a lot of acquisitions in the Bubble, and most of the purchase price was goodwill, which gets counted in Book Value. The Book Value was mostly Goodwill. No, I don't have a number for Price/tangible book. The 0.2 P/B value happened when the stock had crashed, but before they wrote off all the goodwill. It makes things confusing, because they backdated the writeoff of all their Book Value. Anyway, my point was simply that Book Value (and ratios derived from it) is a malleable number, easy for the accountants to play games with, and therefore not very useful for investors (especially in tech companies).
I'm not an accountant, but I think I got the above right.
IMO, for the next 18 months, the useful metrics are P/S and P/CF. I'm not quite sure what to make of the fact that P/S says JDSU is overvalued, while P/CF says it's now undervalued. |
