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Doug,
Many things have changed since that posting, negative and positive. My assumption of 40% annual EGR is a very conservative average. The actual historical rates of growth are (1993-1997) 426.87%, -76.20%, 486.90%, 68.56%, and 276.17%. More telling is gross profit margins, which have steadily been rising, and are leveling off in the 40% range. I cannot understand how a company with these kinds of fundamentals carries a price/sales ratio of less than 3, unless in the context of this being a small closely held company that hasn't really shown up on the map (yet) of Wall St. I am confident the slowness evident from Asia is a short term event, and I assume a full return to historic growth rates within a year. My target 12 mo price is thus more optimistic than some others ($32-38 per share).
You compared Orbit with high margin software companies. I would argue that ORFR is becoming in large part a software business, believe it or not. Their software is the industry standard, and the trend will be that test equipment will become more and more software dependent in coming years, not less; which bodes well for the company's continued market leadership. So to answer your question, I consider gross margins more so than net margins; look for R&D spending to continue to rise.
This is an excellent 2-3 year holding, and you are getting bargain prices here, IMHO.
regards,
Louis |
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