I thought I'd update my trailing twelve month earnings table with
the latest earnings information. I don't consider this to be a
critical part of the fundamental analysis, but, given so many tech
stocks have a significant seasonal element, it is a useful way to
eliminate this and identify how strong the growth trend is
underneath.
Year to EPS (TTM)
Oct '96 0.23 (FY 1996)
Jan '97 0.32
May '97 0.52
Aug '97 0.63
Oct '97 0.91 (FY 1997)
Note that APSG quarters have a month skew (plus a couple of days !)
relative to calendar quarters.
From the table, the earnings growth trend is extremely consistent and
strong. In effect, the annual earnings have been growing for the last
year at a reasonably consistent compound rate of 41% per quarter
(i.e. a nice 300% pa growth !).
So, if we thought this trend would be sustained, and if we subscribed
to the PEG (PE/Growth) valuation method, then the current PER for a PEG
of 1 should be around 300 and the current stock price should be $273.
Nice ! Furthermore, the price should be around $1,100 in a year from
now. Even nicer !
Oh how I wish the company could keep this growth up for 5 years.......
Unfortunately it seems a little unlikely that APSG will sustain the
present rate of growth forever (boo hoo !) and so won't attract a PER
of 300 (sigh). This is because the current earnings growth is coming
MAINLY from improvements in gross margins. In the last report, I think
it said that GMs were up to 40%, and of course you can't go any higher
than 100%..... (though you might get above 50%). So, in the medium term,
GM improvements are likely to continue to contribute dramatically to
earnings, (i.e. more spectacular earnings growth to come !) and then
things will slow down as earnings growth becomes driven by the rate of
revenue growth, i.e. a mere 24% (based on the recent numbers).
I've done some quick calculations on what I estimate the future effect
of all this to be, and my strawman calculation suggests that '98 earnings
could be around $1.50, and that a PER of 20 is probably warranted.
This would give a 12 month share price target of around $30,
i.e. 100% gain on where we are today. Still very nice.
In the short term however, I wouldn't expect the price to do much until
January. There is still a lot of paranoia about the Far East situation,
(and no recognition that APSG will likely be sheltered from it), and many
people have made a decent wadge out of APSG so far this year and will
continue to profit take. It will also take a little while for the
analysts (analyst ?) to revise their projections for '98, and revise
their forecasts. Assuming these are favourable, they will also help to
kick-start the process.
My projection is therefore flat short term, with strong growth, maybe
starting as early as January, progressing through 1998 to a target of $30.
Who knows, there might also be some hype, based on misunderstanding of the
earnings growth which could drive things through $40 mid-year. This could
be fueled by good results in the next couple of quarters (the first of
which we should see in a mere two months time).
So there you are, a detailed projection, which probably means I'll be
proven completely wrong !
Anyone else care to make a '98 prediction ?
Mark |
