You write:
>>Seagate is generally thought to have a reasonable potential to earn $2 in an average year, with good prospects to grow in size as the industry grows.
So, SEG is trading around 15 times earnings (well, more like 13 times), but think normalized earnings, not trailing earnings, and it makes more sense.<<
By normalized you mean the $2? What is the source and/or calculation to derive $2 (which is a reasonable potential - I like this caveat)? Why is this considered normalized? What is meant by normalized and what is its basis in the pricing equation?
I don't work with "normalized earnings", since pending a futher explanation and definition, I don't think such a thing as predicable normalized earnings or reasonable potential normalized earnings truely exists. If it did should Seagate have experienced a loss last quarter?
I do, however, believe it is important to take into consideration the earning estimates and/or projections, since the market trades ahead of itself and more based on expectation then history. However, history provides an invaluable benchmark for comparison and has its basis as an indicator especially in maturing situations.
An investor should (must) do their own analysis and make their own determination if the estimates are reasonable (analysts have been wrong on estimates and projections before), take into consideration other important factors (there are many books and numerous other writings covering this area), and determine the fair price/value.
Based on what is happening in the DD industry, the estimates appear to be presently aggressive and overstated. Look at what is happening to WDC and QNTM. Historical relationships may sometimes provide a more reasonable and conservative basis for valuation. |
