SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Non-Tech : Any info about Iomega (IOM)?
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: J P Cross who wrote (6973)9/9/1996 1:43:00 PM
From: J P Cross   of 58324
 
To All, A Motley Fool post on IOMG stock value.

Date: 96-09-06 20:53:45 EDT

From: RSchoensta

I just read JOHKGUN post demanding math be used to explain why Iomega could be overvalued. Here is a post I have been working on, with some math that explains just that.

----- I have been following Iomega for the past month and half on the sidelines.

Now here is some of my thinking on the prospects of the stock.

First it is necessary to separate to a degree the prospects of the company and the prospects of the stock.

This is because the company could do quite well and the stock price might do nothing. Although this is all relative.

My own rough approach to valuing a stock is this: Assume that a stock is fairly valued when it has a PE of 17.

For the sake of simplicity lets assume that Iomega is priced at $17 on January 1, 1997. And that Iomega made enough money in the 4th quarter to bring earnings for the year 1996 up to .50 - which is roughly what is predicted. This means that at 17 Iomega would have a PE of 34 or about double fair value.

Now course one could then argue that Iomega should have a higher PE because of it's growth. In fact since Iomega is predicted to make 1.00 in 1997 you could argue that Iomega should be valued at 50 under the above scenario. The reason is that the predicted 1.00 for year 1997 represents a predicted growth rate of 100% over 1996.

This highlights what to me seems one of the problems of taking the YPEG too literally. And that is that the YPEG doesn't work when you have a sudden drop off in the growth rate. Take the above facts and if you figured that the eps should equal the growth rate to be fairly valued, then Iomega should selling at about $50 by my calculations under the above scenario (100 x trailing earnings of .50.) at the beginning of 1997.

But here's the point: Suppose Iomega drops down to a 30% growth rate for 1998, then Iomega would be fairly valued at only 30 - at the end of 1997.

(30 x trailing earnings of 1 dollar.)

And even if Iomega grew at 30% in 1998 if the growth rate fell to 20% in 1999 then Iomega would be fairly valued at only 26 at the beginning of 1999.

(20 x trailing earnings of 1.30).

So using the YPEG in too literal a fashion gives a stock that is valued at $50 at the beginning of 1997, $30 at the beginning of 1998 and $26 at the beginning of 1999 under the above scenario.

This don't add up.

There is no way that a stock should be worth less as the company makes more money.

That aside, it seems to me that Iomega has to do extraordinarily well to increase the stock price over the long term.

Lets use some of Iomega's own figures to see what is required.

Iomega a while back said that it's target for operating margins was 8 to 12%. This is income before taxes. Taxes bring net margin down to 4.8% to 7.2%. So if you look at the optimistic side Iomega has to reach 1.8 billion in revenues next year to make the 130 million dollars necessary for eps of 1.00 in 1997.

(130/.072 = 1.8 billion.)

(And I am assuming 130 mil shares roughly. 130 mil dollars/130 mil shares = 1 dollar eps.)

If you look at the pessimistic side then Iomega has reach 2.7 billion in revenues next year to make 130 million (130/.048 = 2.7 billion.).

Now to reach 1.8 million in revenues Iomega has to average 450 million in sales for each quarter and to reach 2.7 billion in revenues Iomega has to average 675 million in sales for each quarter.

This is far above current sales. And since Iomega is committed to lowering prices it has to dramatically increase unit sales to reach these goals. For example when Iomega reduces it's zip prices to $150 it has to increase sales by a certain percentage just to stay even in net revenue. And this assumes no decline in net margins.

And you have to ask yourself, just how many zips can Iomega sell before the market becomes saturated. This is why it is essential that Iomega get more OEM's on board and get the existing one's to include the zip in more models.

I could go on but this is enough.

Rich Schoenstadt
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2026 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News