Beachbum, I take this as a contrary indicator, especially since
some are throwing in the towel based on market perception
rather than fundamentals, altho' it sounds like Addi is also trying
to diversify his portfolio.
I think this great bull market of the last 3 years has begun to spoil
us-- I know I have to resist the temptation to demand 25% returns
every quarter. Sun is currently trading at 22 times trailing earnings,
which translates into about 18x forward 12 months--below (I believe)
the S&P which has a long term growth rate projection of somewhere
around 6-8% vs 18% for Sun. Sounds like a value play to me, if
you believe Sun can sustain 18%.
But, one has to be patient, because the Street has always had a
love/hate relationship with this stock, and will probably continue
to do so. This creates volatility, which, it would seem, many people
don't like.
My personal valuation model for Sun is 22x trailing earnings (where
it is today), plus or minus 4x , and this reflects the general market
conditions today. As I mentioned before, I believe this is a slight
discount to the S&P, which, in my mind, arises because of Sun's
relatively weak odd quarter's performance, followed by relatively
strong even quarters. I'm sure the analysts hate to think out beyond
3 months, so they downgrade the stock. I'm sure everyone agrees
that most of them are idiots, influential as they may be. But, over
the long term, they are just noise in the system.
Personally, I believe Sun will continue to grow the top line in the
18-20% range, with quarterly variations. Gross margins will continue
to grow in the foreseeable future as the server business continues
it's decent level of growth. They will probably plow any Java
related growth back into the business, and I don't believe any of
the potential Java upside is reflected in the current price (a lot
got in there when the stock traded at 53). If someone's looking
for a steady growth stock, with minor fluctuations, this ain't the place
to be. If one is satisfied with 25-30% p.a. for the next few years,
with significant upside/downside moves, this is the place to be.
On a related note, if you write options, volatility can be you friend.
Carl |
