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Strategies & Market Trends : Value Investing
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To: Paul Senior who wrote (25404)11/30/2006 11:58:29 AM
From: MCsweet  Read Replies (2) of 78751
 
SCMR,

Paul/analizer, I agree that subtracting out cash is another good way to look at multiple. Most analysts I see do that.

So you look at earnings/sales multiples on the business minus cash with interest income subtracted out. The issue then is say the core business is at Price/Sales of 2. Even if Price/Sales multiple on core business moves to 4, not a huge move in the overall stock price, since mkt cap >> sales. On the other hand, doesn't seem like you are going to lose on SCMR unless management really makes a boneheaded decision, and it has been to 5.25 in the last year. May be worth a starter position.

MNDO and CSTL are a couple of stocks with less cash (but still ample) and hence less cushion, but more leverage to improved operating results due to lower Price/Sales. I'd consider buying more of these in the mid-to-low 2's, but SCMR is a safer stock.

MC
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