[ Playing with the numbers ]
>>But then, as you say, considering 175K lines in 98-99, at $40 profit / line is $.46 / share. Applying 35% GR (from First Call and Forward Concepts) gives a PEG valuation of $16. A conservative analyst would use a PEG TTM valuation model. A more aggresive model would value it at a forward estimated PEG. So $16 (providing no other costs/charges that would change earnings) would either be a fair value for WSTL in April of 98 or 99. <<
SteveG's numbers -
Assume - 175K lines at $400/lines with 20% profit margin.
175,0000 * $400 = 70million * 20% = 14million
BillC's numbers
Assume - 175K lines at $550/line with 30% profit margin.
175,0000 * $550 = ~96million * 30% = ~28.8 million
14 million vs ~28.8 million
Oh.. Tax rate of 50%... {Still haven't concluded this is true yet, I'm still looking for this information}.
7 million vs 14.4 million
Why assume $550/line and 30% profit margins? The Bell Atlantic deal is a volume/price contract. If BA purchases 1 million lines, they may get the modem-pair for $400/line. If BA purchases 50,000 lines, they pay $600/line. The price is based on the volume of the order. BA doesn't provide the volume, Westell doesn't sell the modem-pair for $400/line. We are assuming 175,000 lines, this ISN'T a volume purchase. So I'll assume $550, half way between the STATED price of $500-$600/line.
Why assume 30% profit margin. Since Westell's present profit margin is ~31%, I'll assume 30%. Again, if we are assuming 175,000 lines, which ISN'T a volume order the profit's will remain in the 30% area.
* NOTE Here's the important part!!!! This is called playing with the numbers. Do you see how the bottom line changes from SteveG's -14million to BillC's -28Million for the slightest change of $150/line and 10% on the profit margins? The larger the upfront % change, the GREATER the total um is off.
WAIT... we're not done yet. We still have GROWTH RATE, "GR". We have a market of a few thousand modems today with MASS market starting in 1999. How does that compute to 35% GR? This industry will grow at OVER 50%.
Once SteveG provides details on his computations on PEG valuation of $16, I'll provide my numbers with his computations.
Conclusion - I usually ignore these types of discussions on the AMTX and Westell threads. Why... it should be obvious, it's called playing with the numbers... until later. |
