I enjoyed reviewing your post Dale. There are certainly many ways of comparing and analyzing a stock, and It's always interesting to me to see the factors and variables others consider important. I believe that you have taken a seemingly logical approach by comparing Syquest to Iomega. After all, they're mostly competitors in the same removable market place. However... I believe this is a big mistake for two important reasons:
1) Iomega makes the majority of its money on product sales where unit volumes are huge and resulting manufacturing costs are low. In addition, a large R&D budget allows for continued improvements to manufacturing efficiences and further cost reductions. Thus, Iomega has been able to grow net profit margins to the 6%+ range even as selling prices have been decreasing.
2) It is also widely acknowledged that Iomega makes the majority of its profits as a result of disk sales and margins. With SparQ disks priced at an incredible $33 each, I would have to assume that margins would be significantly lower.
To do a straight comparison of Syquest based on Iomega's numbers, one could simply apply their net profit margins percentage to estimated Syquest revenues:
If we use the $250 million in revenues estimate for Syquest and take the 7% net profit margin number from Iomega's last quarter (BTW, the highest % they've reported in six quarters), then resulting EPS (based on 150 million shares) would be $0.1167. You would have to assign a 58 PE to get to the $6.74 number you referenced.
Critical in any analysis IMO is estimating the net profit margin. In my crude review, I suggested 3%. This is probably high when you take into account the factors I mentioned above.
I'll stick with my $2 valuation for next year.
Regards - Dale
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