SMTC will release Q4 results next Wednesday (1/18) at 4:30pm ET.
Jeff- What makes you think that sales are future growth? Sales and earnings are both present growth. Only forecasters can indicate future growth. O'Shaughnessy's Cornerstone Growth likes growth companies with a P/S of less than 1.5. If SMTC were to fall to $12, it would not show up on the P/S screen. Gimme a break. It's even worse for high margin companies like CSCO, MSFT, LLTC and drug companies. Those stocks won't ever have P/S of 1.5 unless the stocks decline by 80%. O'Shaughnessy's research is effective if you're dealing with companies of low profit margins, such as the manufacturers and retailers of yesteryear. But today's good growth stocks generally have much higher margins (at least 10%), so it's unlikely to get a P/S as low as 1.5. I don't think a P/S comparison to an industry is useful, unless most of the companies have similar profit margins. There is an important factor in determining the usefulness of P/E: R&D costs. MCRL has higher R&D than SMTC, and it still has slightly higher profit margins. That's mainly because its gross margins are higher. If you neglect to consider R&D when comparing P/Es, you may get flawed results. This is one area in which Michael Murphy's Growth Flow calculation is important (adding after-tax R&D spending to net income to get an even comparison). Sales are present growth, but R&D is supposed to indicate future sales growth (unless the company is flushing its money down the tubes).In the case of R&D and other costs, P/S may be useful. But any person who looks closely at a company's financial documents will not need P/S as a valuation tool.
Todd |
