Vted, It might help to look at this article from MS Investor re TLAB's P/E: investor.msn.com.
As the article explains, by estimating 27% earnings growth, the analysts may well be low-balling the estimates for TLAB. (It is after all several quarters away, so the analysts have to leave space in their numbers to the upside.) TLAB's historic earnings growth is 64% (over last 5yrs), and I think you can expect the earnings estimates to creep up closer to around 45-50% earnings growth by the time '99 numbers start rolling in. Another explanation for the relatively low $2.29/sh. earnings estimate is the CIEN acquisition. TLAB management made clear that the acquisition would slightly dilute earnings in '98 and '99 but would be accretive thereafter. The conservative growth rate may also be attributed to this.
Finally, IMO, you can't simply subtract the growth rate from the PE to figure out whether TLAB is a good value or not. While a PEG ratio is a helpful rule of thumb (like most, I use a 1:1 ratio as a baseline), subtracting Growth rate from PE does not yield a useable number. The theoretical gap between the PE and the earnings growth number (what you call a "surprise factor") is really about 17%, not 22% (earnings growth of 48% x 1.80 = 2.66 compared with analysts est. of 2.29. The difference between 2.29 and 2.66 is 17%.). That's not much gap considering we are still in FY'98. Your calculation also doesn't tell you that TLAB is in an industry that typically has a PE of 45-50. That factor locks the TLAB PE into a stable range. Look at CSCO or LU to compare. If TLAB meets the low 2.29 estimated earnings in 1999, its stock is up to around 110 (assuming PE of 48). That's a return on equity of 30%; not too shabby. And if it hits earnings growth of 48% (to match its PE), it will earn est. $2.70, and the stock could be as high as 131 in '99 or a return of 55%. I realize that this is a lot of pie-in-the-sky thinking, and assumes that TLAB performs as well as it has in the past, but that's why I think the price of TLAB is about right. I would buy if TLAB drops below 80, and trim back my holdings if it goes over 100 before the end of this calendar year.
DougHboy. |
