3 Scenarios to look at: (1) RISK vs REWARD, (2) GROWTH RATE vs PE, and (3) "Technical Breakdown"
(1) Stock is very attractive: CSCC is in an attractive industry with strong market share, high growth rate and a large commitment to R&D. Sales and earnings have grown at tremendous rates and should slow substantially but will exceed twice that of the S&P over the next 3 years. The upside for CSCC should be between 30 -45x earnings for fiscal 98; That should be between $47 to $70/sh. (Personally I think the upside could be higher if they slightly exceeded the street's estimates and the sector got back into favor.)
The risk is if the sector gets out of favor, and the company fails to meet expectations and loses market share. With a pessimistic attitude: let's assume growth slows to 25%. A low PE of 15 and earnings of $1.25/sh for 98 ($1.00 for 97). This implies a low of $15 near term and $19 as we approach '98. I don't think this will happen nor do i think portfolio managers will. But this suggests a risk of about 40% or $10, compared to an upside of at least $22, or 88%.(based on price of $25/sh) Thus a reward to risk of over 2/1. I personally think company could see $90-100 within 12 to 18 months once confidence is restored and sentiment changes back.
(2) Peter Lynch basis: stock is attractive with growth rate estimated at 44%+ and PE now at 25X '97 earnings.( I've heard of estimates ranging from 35% to 60%)
(3)CSCC is in a major breakdown and until it finds some support level and has based for a period of at least a few weeks, it is in a very dangerous position.("Falling knife" theory) Only major support level I have seen goes back to '95 and is around $14. God knows I would hope that is not tested or I would suspect that fundamentals have gone in tank.
My decision: I am going to at least take a half position at current levels. This goes against my experiences of getting in the way of something in "freefall". However, I personally think that this a major over reaction b/c mometum investors are gone and earnings mom. investors are about all gone. I am willing to take a chance at these levels and lose $10/sh, realizing that it could be a "4 bagger" in 12 to 18 months. If the stock drops into the teens I will buy more assuming no detrimental announcements have been made by company. To all those who purchased earlier: You should see daylight but it will take many months for full recovery. Much psychological damage has been done and many investors are scornfully bitter and doubting.
The quality of the company and future performance will be the savior to all those invested. AL: good luck and appreciate your comments on the thread!
P.S. The breakdown of the Nasdaq led by Intel, Microsoft, and Cisco does not bode well for near term tech performance. These stocks represent a huge portion of the Nasdaq and only recently are showing signs of breaking down. MSFT and INTC are especially vulnerable with support way below existing levels ($69 for MSFT and $105 for INTC) . Nasdaq itself is still almost a 100 pts away from support; again primarily due to the runup of the biggies. I welcome any responses, and am sorry for the length of this post, but think a look at the "fundamental vs technical" story is warranted after so much talk on this thread about the future price of the stock. |
