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Strategies & Market Trends : Professional Equity Analysis - the Pursuit of True Value

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To: Reginald Middleton who wrote ()	1/26/1997 6:30:00 AM
From: cape radical	of 102

bravo RCM! it's about time someone started talking sense instead of hype about the valuation of companies. i could not agree with you more about the fact that investors must consider whether a company is destroying or creating wealth. i am quite interested in the EVA approach and even had the pleasure of attending one of joel stern's lectures (he is pure brilliance and entertainment). i have not had a chance to look at your software, but i will check it out as soon as i find the time. i guess that time is THE reason why value-added techniques are not popular amongst most investors. they can be time consuming but as you note, the benefits outweigh the hassles of lost hair, broken marriages and lost $. it is much easier to look at the PE and a few technical indicators than to calculate the PV of a company's wealth. a good example to consider is the case ZOOM. compare the numbers of ZOOM vs. USRX and you'll get the illusion that ZOOM is seriously undervalued. if you dig a bit deeper, it becomes apparent that USRX is creating value (its ROIC far exceeds its WACC). ZOOM is not creating value as evidenced by it much poorer ROIC. i will take a closer look at ZOOM after its next financials are issued. a company that i believe is creating excellent value is ESST. i dashed through its financials and adjusted them accordingly. FY1996 saw a 36% ROIC and FY1995 saw a 34% ROIC. if we assume a beta of 2 (what do you normally assume for the techies?), the WACC is 20%. the press listed a 1996 EPS of 0.52 and i calculated 1.5. the present stock price is $30 which is a PE of 20 for an aggressive company that increased its revenue by 114% and its adjusted earnings by over 80%. this example indicates that even a quick EVA approach can give small investors extraordinarily insightful information. keep it up! i believe that CA is a good value play. any opinions?

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