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Biotech / Medical : Biosource International

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To: Joe Dancy who wrote (187)	8/30/1997 6:13:00 PM
From: Robert T. Quasius	of 696

I think that write-downs is a risk to purchasing based upon discounts to book value. Write-ups is also a possibility, whereby further evaluation of a company's reserves shows more oil and gas than previously thought. The interesting part about book value for energy companies it that it reflects the value of a company's proven reserves, which any potential acquirer can utilize. Not like a manufacturing company where it's assets might not fit an acquirer's business. I think that cash flow is also very important for energy companies. an example is Abraxas Petroleum. This company consistantly is losing money, but if you look at what is happening under the surface, they are taking their cash flow and agressively acquiring oil and gas producing properties, and then drilling agressively as well. This company is selling for around $14/share, up from $7 a year or so ago, but is really worth about $20-25/share. Book value, earnings, and earnings growth don't tell the full picture. Cash flow is important as well. Also, strong cash flow often can be a predictor of earnings growth, since plowing money back into a business may lead to an explosion in earnings later. Just my two cents.

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