Gottfried,
Applied Materials projected five-year growth rate is 23%. That's far below the past five years 66%. Perhaps it's too conservative. We'll see.
I don't mind if the stock surprises to the upside. However, even with the phenomenal growth this company has demonstrated, trailing P/E ratios typically run in the 20s. AMAT's trailing P/E is currently at the upper end of its five year range of 6.6 - 40, at the same time gowth is expected to not keep pace with the last five years.
I'll reiterate: stocks are trading at higher multiples now. I refuse to take this for granted, so as to avoid getting caught holding all overvalued stocks when the thinking goes back to the norm.
As you said, based on next year's estimate, the P/E is about 20. At the end of FY98, with a trailing P/E of 25 (historical average, my estimate from observing the stock for years), the price would be
25 x 2.12 = $53. This based on FY98 estimate of $2.12.
I'm not trying to talk the stock down, I own it. It's perhaps my favorite investment. Nevertheless, the stock has doubled in the 27 months I've owned it. They earned $1.28 in FY95, and are expected to earn $1.34 in FY97. Think about it! The future (estimate) may not materialize for one reason or another.
I can't own a stock based solely on next year estimates. I have to add a dose of reality: money in the bank so to speak. Reality is that we have two qtrs of growth behind us, working on a third, and just getting back to revenue and earnings levels of late FY95 and early FY96 but at twice the price.
All I'm saying is I don't "count on" the stock going much past $50 until the earnings catch up for a few more qtrs.
In closing, I hope AMAT doubles in the next twelve months instead of my scenario.
Sorry to run on so.
By the way, when I bought INTC two years ago, its trailing P/E was 16, now it's 21.4 with projected gowth next year of just over 15%. Maybe it's too conservative an estimate...
Stu B. |
