Hi Teri. A while back I was talking about the effect of S&P 500 valuation on AMAT's low. Last weekend on his radio program, Bob Brinker mentioned that the S&P 500 P/E two years ago was 16, and that it is now 50 per cent higher. (I believe these figures are based on operating earnings.) On the principle that a stock's valuation should be judged in comparison to that of the broader market, if we apply that same premium to the historic figures which you posted for AMAT's price-to-sales in previous lows, which were in the range of 1.0 to 1.5, if I recall correctly, then we would come up with a forecast range for P/S of 1.5 to 2.25. Baseline Financial Services currently shows a P/S of 2.26, which was based on last Friday's close of 29 11/16. So we are now at the top of the range. If we get back down to the 52 week low, which was 25 1/2 on December 12th, that will be P/S of 1.94, near the middle of the range. Based on this, I think it is at least plausible that 25 1/2 could turn out to be the low for this cycle. The bottom of the range, a P/S of 1.5, would be about 19 3/4. If that happened, I would expect it to coincide with a correction in the S&P.
Best regards,
Richard |
