Hi Glenn -
While I certainly agree that anything about a P/E of 35-40 is too high, my thinking is that Visio's current price volatility reflects this.
If you take last quarters earnings, multiply by 4, you get $1.02. Of course, this is very conservative analysis, because most quarters Visio's earnings increase. However, I'm using it so that the argument seems reasonable. To me, at 36 (my recent additional buy), Visio is priced at about a 35 P/E. That is steep. But how many companies grew their revenue by 97% last year?
Given the stage Visio is at with their market, I also believe there is considerable growth ahead. Good solid growth, both from current and future additional revenue streams. I can honestly see Visio rivaling Adobe in revenues based on their CEO's business model. Visio's target is much broader-based than Adobe, and I think everything they do reaks of their goal: To make Visio products the standard for business drawing.
Anyway, given the volatility of the stock, I think it is possible to make money going short, and quickly covering. You could also make money buying on dips and selling on the almost commonplace, 1 day, 10% gains.
I'm not going to try though. My market timing is limited to waiting for a dip to invest money I've already decided will go to Visio. In Jan, when the stock shot to 44ish, I couldn't take the heat, and I sold 1/2 my stake. There is a limit to how high valuation I can tolerate with that much money. Fortunately, it did drop again, hence my recent buy at 36. After further analysis though, if it soars again to 40s, I won't sell. I think the LT prospects are very very strong, and I can stomach the volatility (I think :)
I will obviously reevaluate if Visio's growth slows on a seemingly more permanent basis. For example, if MS for some bizarre reason decided to go head to head and attach their product to Office, that would be "a bad thing". However, given their proximity, MS failed acquisition of Intuit, MS & the DOJ, and Visio's very compelling status as the only company that can implement MS's latest tech (besides MS), I think it's unlikely. |
