Well, if you do bother to read some of my posts I think you will
see that I do lots of research into stocks. Have since done some more
looking into this one....
The two lead underwriters (the bluest chip one <Morgan Stanley> and the leading technology one <H&Q>) have 12 month price targets of 42
and 35 respectively. That's a bit higher than I had expected given
the offering price and price history since, but well below current
prices.
The H&Q valuation methodology was about as bullish as one could conceivably be and professionally justify, in my opinion. They start using as comparables the multiples of among the most highflying
software companies (some of which are trading at MoMo levels themselves) Cos that have products shipping in volume but no end
in sight for their pace of early stage growth into their markets. Ok,
but they then multiply that average PE valuation by 3!
(Analysts at firms that have recently underwritten have enormous pressure on them to issue the most bullish reasonably possible reports on their new offspring post offering.)
-------snip
A relative valuation analysis using high growth software companies (Forte,i2 Tech., NSCP, Remedy, Siebel Syst. Vantive--table ommited) shows that, on average, the comparable software companies are currently trading at 42x CY 98 EPS with a 1997-98 P/E to growth rate of 0.68. Rambus is currently trading at a 109 P/E with a 1997-98 P/E to growth rate of 0.43. Although the Rambus 1998 P/E is roughly 2.5 times the software group average, we believe it should trade at roughly 3x the group average, or 127x our CY 1998 EPS of $0.28m because we beieve these software companies do not have the hockey stick like earnings potential that Rambus has to offer in 1999 and beyond.
Therefore, we are initiating coverage on Rambus with a BUY rating and a 12 month price target of $35 based on 127x our 1998 EPS of $0.28.
-------snip
My view is that this valuation does not adequately address the risks
that earnings are not as "hockey stick" post 1999 as assumed. Clearly
they COULD be.
But at any rate, it seems to me that prices over these valuation levels today are completely unjustified...
I'm not short. Its very hard to tell when a stock like this will break. But I sure wouldn't want to own it going into this coming
weeks possible strong volatility....
[its always amazing to me how upset many people get with bearish
views on any stock...and how accepting most on these theads are with
any amount of drivel in posts, so long as its positive. Personally
I love it when someone makes a reasoned bear case on any stock I own.
Helps me see the other side, and evaluate it against my reasons for
owning.]
Regards |
