To the thread:
The following has been excerpted from the Standard an Poor's Stock Reports, May 31, 1997.
"Overview - 11-APR-97
"PAIR has been a major beneficiary of the explosive demand from end users for higher bandwidth services for applications such as internet access, telecommuting, remote LAN (local area network) access and video conferencing. Revenues are expected to grow strongly in 1997, led by sharply higher sales across all major product lines, especially HiGain products used for T1 (1.544 megabits/second) access, and the introduction of new products. One of the company's new products, the PG-Flex, should enable PairGain to capitalize on the increasing demand telephone companies are experiencing for additional access lines in residences and small businesses. The new Megabit Modem and EtherPhone products look very promising. In addition, the company is now focusing on increasing its presence in international markets, which should help drive future revenue growth. Gross margins are expected to remain stable in 1977. While the company continues to spend a significant amount on R&D to enhance its product lines and to develop ADSL transmission products, the continued introduction of new products should bolster future results.
"Valuation - 11-Apr-97
"The shares of PairGain, which split 2-for-1 in December 1996, fell significantly despit strong first quarter results. We are bullish about PAIR's growth prospects and market opportunity. The company's strong market position and introduction of new products should enable PairGain to continue to report strong earnings growth through 1997 and beyond. However, we downgraded PairGain shares in early April from hold to avoid based on price. With the shares trading at about 40x our 1997 EPS estimate of $0.75, we would avoid purchasing the shares."
[snip]
Earnings Per Share($)
1Q .15
2q E.17
3q E.20
4q E.23
1998
yr. 1.05
[snip]
Paraphrasing from the report:
Of fourteen analysts following PAIR, 6 rated it a buy, 6 rated it a buy/hold, 0 rated it a hold, 1 rated it a weak hold, 0 rated it a sell, and 1 had no opinion.
S&P rated the stock ** (avoid)
My comments: S&P is quite bullish about the business prospects for the company. Their fundamental reservations were based solely on the price (at the time of the report about $30). The sharp drop in price (as of this writing about $17)) coupled with the average anlysts' 1997 EPS estimates yields a P/E of only 22.4x, and for 1998 14.2x. The analysts expect EPS growth of 39.5% from 1997 to 1998. Assuming that this is a sustainable growth rate, and assuming that earnings are expected to come in at about $.91 for the next 4 quarters (starting with q3 1997 and ending with q2 1998) The YPEG value of this stock is 39.5x.91, or $35.95. The stock is trading at about 47.3% of this value.
The report did note that the stock was technically in a bearish trend since March and noted that insider trading activity was unfavorable.
Paul |
