Paul. Nice to meet you. It's a nice change to actually have someone refute my points in a reasoned, orderly manner. Most SI residents just like to shout that someone is an idiot if they disagree.
1) I agree that the long-term revenue opportunity (market size, growth etc...) is of extreme importance but I differ markedly on your "product transition" comment. I think product transitions are the absolute key to P/E ratios. IMO, the stock market is an emotional animal and stocks trade far above instrinsic value. In reality, assets are really only worth the cash flows they can produce discounted to the present. However, stocks consistently trade far above this value which makes the whole market a confidence game. If you are confident in the company's outlook, you can get a huge premium to intrinsic value (e.g., big P/E). If not, why pay much more than a market multiple (roughly 20x) for a company whose outlook is less than rosy? Product cycles are the key. As new product cycles kick in, revenues accelerate and confidence is high and high P/E's are sustainable.
2) I have little reason to think PAIR will not collect its receivables. You can't book a sale unless the receivable is deemed "probable" so questioning the receivables is basically questioning the integrity of management. I have no such concerns. My only point was that receivables last quarter increased drastically and that put this (June) quarter at risk as they may have moved sales from June into the end of March in order to make their March numbers. This makes June significantly tougher. Now we are seeing the effects (analysts lowering numbers). They are far too late however as the stock has already discounted a flat quarter. If the quarter is much worse than flat and receivables go up significantly again, there may be another leg down in the stock.
I would say that being a long-term investor doesn't preclude paying close attention to current business trends (quarter-to-quarter results). Long-term earnings estimates are inherently based on short-term results. It's not magic how analysts come up with their estimates for growth companies. If this quarter is $.17 then next quarter will be $.18 or $.19 and the following quarter will be $.19-.21 and so on. If this quarter is instead $.20, then there is a compounding effect resulting in a dime or more increase to the out-year estimate. Therefore, you must focus on short-term results if you are going to use long-term earnings estimates. |
