Few things cause one to test, retest and then just for safety's sake, to reretest a few more times. That's what I've been experiencing as AXC gets stronger, richer and closer to company stardom every day, but the price instead goes lower and lower and, well, you get the idea. Here's a piece on what someone mentioned recently on PEG ratios. I'm going to quote or paraphrase some of the Smart Money March 96 article, and then do the math for AXC.
The PEG ratio is particularly useful for tech companies. it's short for the relationship between a company's growth rate and it PE ratio. Ideally, some say, the "fair value" of the ratio should be 1:1, but its more useful as a contrarian tool to point out extremes of under and overvaluation. At least 2 studies have shown that there's a significant link between PEG ratios and growth stock performance. Stocks with hi PEG's (pe's higher than eps growth rate) tend to be poor performers while stocks with low PEG's (pe is much lower than growth rate) tend to beat the market. Simply avoid the stocks with sky high PEG's and take a closer look at those near the bottom.
He then goes into using Telescan to run a screen with low PEG's and recommends a bunch of hi tech stocks, the cheapest one with a PEG of .4, Novellus at $50 last February (what's it at now BTW?).
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When I look at AXC, or rather, when I look forward to AXC 5 years out with my infamous hoped and expected for 100% eps growth from .28/96 to .57/97 (3or 4 brokers estimated) to 1.07/98 (and that w/o KM) to 2-5 possible with fuller acceptance of KM in 99, on up to near $10/00 or 2001, I get 100% growth divided by current PE of 25, or 12.5 if using 97 PE, and I get a PEG of either .25 using 96 #s or .125 using 97 #s. Even if the #'s aren't so dramatic from KM as I'm hoping, the PEG ratio here is still a huge bargain! The S&P, trading at 21 PE, has an expected growth rate as a whole basket of 7-8% this year, so its PEG is ~3.0, or 12X more expensive than AXC. Imagine the S&P at 67 instead of the current ~800, and that's what AXC is valued at using the PEG ratio. This undervaluation may go on for some wearying time, but eventually this severe underpricing will end and we'll explore more of the overvaluation end of things! |
