Mr. Jacobsen: Please forgive me for "buttin'-in" as I'm new to the thread and don't seek to address personalities but am interested in valuation...my intent is to speak to valuation in light of the facts and opinion you've stated in the foregoing post...an opinion I believe to run true. There's a formula in Benjamin Graham's "The Intelligent Investor", page 158, that's worth perusing under the section rubric "Capitalization Rates for Growth Stocks". It goes, "Value = Current (Normal) Earnings x (8.5 plus twice the expected annual growth rate)". My copy is a number of years old...fourth revised edition, copyright by Harper & Rowe, 1973...I bought it in 1983. The reference does not say how far forward one must look for an expected annual growth rate when applying the formula. AND, let me add right here for all to read...get your own copy of the book, conduct your own research, and apply your own interpretations in coming to conclusions with regards to constructing a valuation model for PairGain...everyone oars their own boat. So, I look at Value Line and take the low end of their growth projections over the next three to five years, 23%, and assume that by 12/31/97 PAIR has earned 80c for the year. Applying the formula, 80c ((23*2) + 8.5) = $43.60 per share...$43.60 per share assumed value on 12/31/97...assuming PAIR gets its growth back on track with the new products discussed in this thread and that the products are accepted by their customers - ANYTHING CAN GO WRONG WITH THE MODEL...even real analysts, and not amateurs like myself, have trouble getting a handle on future events lying out of one's ability to either anticpate events or influence the outcome...events that cause models blow up in your face...wittness what's happening now.
Thanks to all for the technology information...in the end, technology and fundamentals are going to drive this company's stock, either up or down.
I put my money on PairGain.
Ed
PS: Lord knows, "I've had a few of my own models blow-up in my face!" E |
