Please post what you come up w/ on your SSG, as I'd be very curious to see how close we are in our thinking.
When working on Part I, I treated 1987, 1988, and 1990 - 1992 as outliers. Normally I'd not be comfortable in going forward w/ further analysis based on having to throw those many years out, but based on my understanding of the co. and its history (from the Stock To Study article as well as from a conversation I had w/ the co.'s CFO), the co. was involved in some business lines that it sold off, which causes one to view the past w/ a little less weight. As the co. has performed very well since '93, I am more comforted in doing this. Still, for the sake of being conservative, my analysis assumes only a 13% growth rate for both estimated sales and estimated earnings going forward to 2001. I strongly believe actual results will surpass this, but staying fairly low in my estimates only goes to assure a good investment return.
Part II - Pre-tax margins and ROI have been on a good upward slope since '92. I would like to see improved margins going forward, and this would likely boost future ROI.
Part III - Throwing out '92, my average high and low PE's would be 20.4 and 11.2, respectively. I think these to be reasonable parameters to play w/.
Part IV - Using the 20.4 as a high PE, and multiplying the PE by $4.85 (my estimated 2001 EPS based on the 13% figure from page one), I'd come up w/ a projected high price of $99.00. The low PE of 11.2 times last year's EPS of $2.63 gets me to $29.40. Last year's low was $33.50 and the stock recently had dipped to $36 or so on not all-that-bad of news, so I think using the $29.40 would not be unreasonable. Maybe I should go a little lower?
Anyway, using the $29.40 and $99 as parameters, my estimated buy range goes up to $52.60, and my upside-downside is currently 4.8, based on Friday's close of 41 13/32. The stock is currently trading at a relative value of 90%, once again using only PE's from 1993-1996.
Part V - All the above gets me to looking at the stock as providing a projected total annual return going forward to 2001 of 19.1%. Once again, this could be conservative.
So all in all, I think that this does look to be a good candidate for investment. Do you concur?
Thanks,
Khris |
