Allen, in using PSR PEG etc as indicators....
The most difficult part of using these indicators for companies such as WIND is what do you use as "normalized" sales and earnings. Using just software companies as a comparison, well established players such as MSFT, ORCL and CA all have a base to build upon. If their top line is $100, the bottom is $10 and the consensus growth rate is 20%, then you can assume that next yr's top line will be $120, bottom $12, implying a profit margin of 10%. This, in theory, will go on and on until other factors change. Apply psr or peg to these situations will generate relatively reliable valuations.
In the case of WIND, how significant is the current revenue/earnings? In other words, what number should we multiply the estimated growth rate by to come up with next yr's rev/earnings. Using earnings as an example, WIND's E was $.43 for FY ending Jan 97. Applying a 37% growth rate, per Zacks', WIND's earnings would be $1.51 for the yr 2000. Assuming a 37 PE, WIND would only be worth 55.87, certainly not worth buying at 40ish now for a measely 40% aggregate return in 4 yrs. Obviously, the same holds true for revenue.
So the question remains. What would you use as a "normalized" revenue/earnings for WIND upon which growth rate can be applied? Without a good S or E number, neither PSR nor PEG would be very useful as value indicators.
Suggestions?
Ramsey |
