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Strategies & Market Trends : Value Investing

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To: Alejandro who wrote (3714)	4/1/1998 2:15:00 PM
From: Kent J. Davis	Read Replies (2) of 78525

ac, This is a high growth stock with a price to book of 5. In my approach I very simply avoid this type of stock- here is the reason: The market is paying a huge premium for growth and management must deliver with new produces and higher sales. One bad quarter and the price goes in the tank, the risk is too high for me. Speaking of risk, I note that there is no entry for capital structure ( debt ratio) built into the input figures My theory is that not many leaders can deliver growth for an extended period of time. Eventually the produce line and market matures causing the growth rate to waver. I thus prefer the situation where the revenues are mature and the path to profitability is through the reduction of costs. It is much easier to redeploy assets and cut costs, than it is to increase the revenue side of the equation. Let me clarify here, I am not saying that the price of this stock will not rise or that one cann't make money here. I am saying that the volatility and downside potential are something that I like to avoid. I have seen too many of these types of stocks drops to the $.88 range when things turn sour. Let me guess, the news background is great- The company is rolling out one great produce after another; Everyone is saying Buy, Buy, Buy! Management is enjoying great success, everything they touch turns out to be a winner. I prefer something in the .5 times book range, where everyone hates it. I think JBM was down there not long ago. Hope this helps a little. Kent

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