I suggest you read PCTH postings #172 and #173 which is an interview with the CEO published in the Puget Sound Business Journal, July 18-24, 1997. This will provide you with a good insight to how the company operates and how it is structured. He said "We don't like to think of ourselves as a conglomerate. We like to think we've chosen the areas we want to be in and, and now we're focusing on those areas."
This article also gives comments and opinions of three analysts located in Portland, Oregon, Denver and Chicago. As far as I know, there is no national big firm following the company. This is still a rather unknown and undiscovered stock, however it is slowly and steadily gaining attention as it grows in size. This is probably a large part of the reason for the cheap valuation.
If you were not following the stock, looking at the newspaper would show a current PE ratio of 22-23 and a person might think it was fully valued, especially if they did not know that the earnings were increasing at an above average rate.
As far as what the PE ratio ought to be, the current issue of Money magazine says that the historical U.S. market average has been that the PE ratio is 86% higher than the growth rate. So if the growth rate is 10, the PE would be 18.6. Because PCTH is a young company and just became profitable, it is difficult to know what their long-term growth rate will turn out to be.
I personally am estimating a growth rate of 25% (might be too low) for the next few years as a starting point. Multiplying that rate by 1.86% would result in a PE ratio of 46.5. However the 86% is an average, so it would be safe to reduce this down considerably. The point I am trying to make is that if this company were to achieve a high rate of growth and also become followed by momentum/high relative strength/high growth investors, there is a lot of upside potential here.
You want to know the risks? A temporary drop caused by a stock market correction is always possible, especially until the company has delivered another good quarter or two of earnings and the trend is obvious to everyone. The risk that it stays relatively undiscovered like many small cap stocks. I personally dont think it will stay undiscovered very long if the earnings rise steadily and consistently. |
