Hey, i've got a question for the longs. Why buy a stock when its 1997 projected EPS is to be 1.05 and fiscal 1998 is to be 1.15. Correct me if i'm wrong, but i don't see the value in buying a stock with such a high forward-based p/e when it's growth rate is supposed to be merel;y 10%. Also, looks to me like the market doesn't smell any kind of buyout at $40/share. Last time I checked, ASND was about 30% under that ...
1. At FY97=1.06 and a stock price of about 27, ASND has a trailing p.e. of 25, the lowest of all the network stocks save Cabletron.
2. ASND mgmt has already indicated comfort with the 4Q number of .23, and is likely to beat that number by a penny or more, further cementing or improving the current p.e. based on 1997 earnings.
3. ASND mgmt has indicated comfort with the 1998 number of 1.15, which is extremely early in the cycle and, hence, extremely conservative. To obtain a forward p.e. of 25 based on the 1.15 figure, ASND would have to trade at 29.
4. Any improvement in 1998 earnings would only make the stock more attractive, as the forward p.e. would drop still more. In this regard, mgmt has said to expect revenue increases of 5 to 10 percent during the first 2 quarters of 1998 and over 10 percent for each of the last 2 quarters of 1998. That should translate into earnings for 1998 well in excess of 1.15.
5. Glenn Rudolph once explained how to figure fair value for a stock based on anticipated earnings. Maybe he can do that again for the thread.
6. As for acquisition value (something that should be considered as consolidation in this sector is quite possible), ASND now has a market cap of $5.4Billion, which is about 4 1/2 times sales. ASND bought CSCC at 10 times sales and LU bought Livingston at about 9 times sales. If ASND were to be sold at 8 times sales, that would price its stock at 48/share.
7. As noted above, ASND is predicting a revenue increase approaching 40% next year. This would translate to sales by the end of 1998 of over $1.6Billion. Eight times forward sales of 1.6B is 12.8B, which translates to a potential buyout price of $64/share by the end of next year.
8. Larry J. just said it better than this post. Look back one post (though, on the acquisition front, I still doubt the company would be sold for anything less than about 50/share).
9. In sum, the prospects for ASND look pretty good long term.
Gary Korn |
