Re: TLAB and Buffet
Disclosure: I'm a Tellabs employee and long-term stockholder.
I first read The Warren Buffett Way over 2.5 years ago, and was
fascinated. It was my first exposure to WEB's ideas and methods,
and I was hooked. Naturally, my first impulse was to examine TLAB,
since it was my employer and largest holding. At the time, even
though we had experienced a couple years of explosive growth, I
concluded we were still undervalued, and kept my position. In
hindsight, it was a good move (this summer's failed CIEN merger
notwithstanding :-( ).
Now, instead of commenting on how I feel about our current
valuation, let me just say this. Using Buffett's methods at least gives
me a way of judging what a fair value is (in my opinion) based on my
own growth assumptions and discount rate. (see appendix of TWBW
for details). It is easy enough to determine owner earnings (Net
earnings, not including one-time gains and losses + Dep&Amort - Cap
Expend.) and then calculate a fair present value, based on the growth
and discount assumptions. Now I realize Buffett also has lots of
other rules-of-thumb, but this particular method of calculating fair
value I feel is very valuable. First find companies you like, with good
management and a proven track record, and then figure out what you
think it's worth.
Again, I won't comment on any particulars since I'm an employee, and
I don't want to violate any SEC or company policies. However, I
will say this. Using WEB's methods as described in TWBW, and using
that as a basis for constructing what I call my P/OE table (price to
owner earnings), showing growth rates vs discount rates, I can say
that the common rule-of-thumb of "PE = Growth rate" is pretty much
worthless. In other words, a company doesn't have to be growing at
50% to justify a PE of 50 (I'm using 50 as an example, that's not TLABs
current PE).
I would definitely invite you to examine TLAB, check out the growth
and prospects, run some numbers for yourself, and see what you
think. And let us know what you come up with.
Bob |
