I think of the P/E at any given time as being the spontaneous market perception as to what a stock's price is worth. I used 20 because that's what the P/E was at the end of fiscal 97 (20.8). I think that their eps growth will continue because the market is there. With declining margins, there's also declining costs, and CPQ should emerge, IMHO, as the dominant low cost provider. I can't remember what their world market share is...low twenties or high teens I believe...it's in their annual report, but I believe their growth rates will at least remain what they are now. I don't look at the current P/E when I make a decision to buy. What I do is look at their historical growth rate over the longest period that I can come up with, and in this case it was the years 1991 - 1997. I figure out what the growth rate is compounded, and then decide whether this can be maintained. Then I take the current estimations (in this case I used the lowest one of .68), and ran the growth rate out to a period of ten years. Then, taking that estimated eps ten years out I applied a P/E of 20 to it, looked at today's price of $23 and figured out what the compounded annual gain is to get from a price of $23 to what I estimated ten years out. Even using a P/E of 7 I would still be getting a return of over 15% compounded annually. Now all of this is an estimation. I'll keep re-evaluating CPQ as time goes on. Right now I see a good future for them, and I like the way they are expanding their products and services. MSFT is good too, but I'm worried about the DOJ so I'm steering clear. I think the best stock of all, based on the way that I figure things out is Harley Davidson.
E.H.F. |
