What concerned me was that previously, the growth rate estimates were around 35-40%, without taking into account I2O. Now it is 26% with I2O in the equation. Granted, the contribution from I2O this year is likely to be small, but nevertheless, a deceleration in revenue growth might be indicated, as suspected by H&Q. Even Ron Abelman hinted at this by stating that the bigger the company grows, the harder it will become to keep up the growth rate. Nevertheless, new exciting products and growth in the overall embedded market could very well help to maintain Wind's growth rate. Windows CE can actually help this by creating more focus on embedded systems.
With regard to cash flow analysis, where it is most useful is that it can provide some indication of an upper and lower level for fair value, after carrying out suitable sensitivity testing. The cash flow analysis for Wind, with whatever reasonable assumptions you use, indicates that today's price is absurdly low, unless you believe that Wind's earnings growth will be less than 20% over the next five years and that there will be no growth thereafter. You seem to be saying that the price change form $61 to $37 that results from dropping the 5 yr growth rate from 40% to 26% is too much and reduces the value of such an analysis. This level of change is nothing in today's volatile market - Wind's price has been more volatile than this, as you know.
As for PEGs, they may be useful for short-term trades to judge what the market perceives and guess the immediate direction of a stock movement, but I have no use for them for long-term holding decisions, where one hopes fundamentals will ultimately rule. You may be right in questioning the validity of a long-term holding strategy in a volatile tech stock in a rapidly developing arena, but that is another issue altogether.
Erwin |
