Dear Zeev Hed, I found your valuation of Cymi at $13 to $15 to be incridibly cheap, if not weird.
First, I do not agree with you that Cymi is limited to sell 1,000 lasers in the future. They can always add another 1,000 or more capacity when market warrants. Yes, they may only sell 600 or even less in 1998, which translates into something like $1.30 per share earning. At $15 per share sales,, are you given Cymi a PE=15/1.30 = 11.5, for a company that is growing at 30~40% annually, while the S&P average PE is 20~22 and growing at 10% ?
Secondly, I can't agree with you in the SPR ( Price to Sales Ratio) you assigned to Cymi. You know, I know, and most everybody else know that SPR is equvalent to PE x Margin. By using a very conservative PE and a conservative margin, I estimated share price to be at least $33 5/8 in the near term, with even more upside potential.
Lastly, I would think the short sellers may indeed be brain dead if they start another round of selling when the stock price reaches $25. Because in my view, once the stock break out to the upside, the signal to the world will be clear and loud, "The longs are in control," "The dust has settled." Don't forget there are still many many Cymi fans waiting on the sidelines to get in once this signal is out.
Please tell me I am wrong, but I believe the stock price chart for the next few months would look like a "V" if we did break out to above $23, although I wish we can take it easy and go up by a nice round bottom.
Following is my estimate for Cymi's fair market value:
SPR = (Price/Sales)
= (Price/Earning) x (Earning/Sales)
= PE x Margin
During the last quarter (Sept. 97), Cymi's margin is 12% after tax; Using the lower end growth rate of 30% as PE=30,
SPR = 30 x 0.12 = 3.6
Stock Price = SPR x Sales / Total Shares
= 3.6 x (600 x $441,000) / 28,344,000
= $33.6 / share
This is conservative because 30% is the lower end of the growth expectation and 15% margin is more reasonable for times ahead (Sept. 97 spent a lot of money in expanding capacity and other items, therefore had a lower margin than typical). |
