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Technology Stocks : JDS Uniphase (JDSU)
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To: ownstock who wrote (23204)12/26/2002 6:25:26 PM
From: Cary Salsberg  Read Replies (2) of 24042
 
RE: "With all due respect to another poster, P/S does not correspond to anything wrt P/E ratio."

In deference to "all due respect", PE = P/S multiplied by (1/ the net margin).

Net margin is the ratio of after tax earnings to revenues expressed as a per cent. Most quality tech companies fall between 10 and 20% net margin.

If JDSU had a net margin of 10% a P/S of 6 would correspond to a PE of 60 (6 multiplied by (1/.1) or 10.)
Of JDSU had a net margin of 20% a P/S of 6 would correspond to a PE of 30 (6 multiplied by (1/.2) or 5.)

In his 1987 classic, "Super Stocks", Ken Fisher, Forbes columnist, money manager, and son of investment legend Phil Fisher, introduced the use of P/S. P/S is useful because revenue is less volatile than earnings when corporate or economic hard times hit and the above analysis allows for future earnings estimates and PEs.
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