TO ALL: Here's an article from Newsbyte -- read it and comment please.
Title: Iomega Stock's Stupifying Ascent
****Iomega Stock's Stupifying Ascent 05/23/96 CHICAGO, U.S.A., 1996 MAY 23 (NB) -- If you took a second home equity loan against your house at the beginning of this year, and bought stock of Iomega Co. (NASDAQ: IOMG), you would have become a millionaire by now. Iomega stocks are extremely hot on Wall Street these days, having jumped from a low of $6.50 in January to $54 a share by Wednesday after two splitting-adjustments.
Iomega, with headquarters at Roy, Utah, is a manufacturer of removable disk and tape storage devices for personal computers and workstations. Its Zip drives (100 MB) are being accepted by some PC manufacturers as a standard installation for high-end PCs. The new removable Jazz drives (1 GB) offer an alternative storage to hard disk drives.
On Wednesday, Iomega stocks was closed at $54 a share, up $10 or 22%. There was a report that Acer Group, a Taiwanese computer manufacturer, will incorporate Iomega's Zip drive as a storage device in its new computer line, called AcrBasic, to be priced at $500. On May 21, the stock split at two for one share.
Iomega's overall revenues were rather flat before 1995, fluctuating in the range of $120 million (1990) to $147 million (1993). However, the firm reported strong sales for 1995. The total revenue increased by 131 percent to $326 million from $141 million in 1994. The net income in 1995 was $8.5 million as compared to a loss of $1.9 million in 1994. For the first quarter of this year, the company reported a net income of $10 million, or 8 cent per share.
The stock has been a controversial issue for quite a long time. In March, the stock had the largest short position among NASDAQ issues. At current share price of $54, the stock is very expensive. After two splits this year, there are 116.6 million shares outstanding. The total market capitalization for the company is $6.3 billion. As a comparison, Seagate, the No.1 market leader in the hard disk drive industry, only has a total market capitalization of $6 billion ($61 a share for 98.5 million shares).
So far, only two major Wall Street estimates for future earnings are available. The average estimate of the earning per share (EPS) for the second quarter (ending June 96) is 9 cents. The average estimate of EPS is $0.48 for 1996 and $0.63 for 1997. According to this data, the stock is trading at a price/earning (P/E) ratio of 337 for the last 12 months, 112 for 1996, and 86 for 1997, extremely high considering the fact that the general market is traded around a P/E of 18 for 1995.
The disk drive industry has been full of competition in the past, which is one of the reasons that the stocks of most disk drive
manufacturers are traded at low P/E ratio.
As a rule of thumb on the Wall Street, a stock is considered fairly valued if its P/E is equal to its earning growth rate. If the P/E is higher than the growth rate, it is generally considered overvalued.
In the past 10 years, the highest net profit margin of revenue reached by Iomega was 11.6 percent in 1990. Suppose that Iomega can reach a net profit margin of 15 percent, and a sustainable growth rate of 20 percent. The current share price can be justified if the company can reach annual sales of $2.1 billion, which is 6.5 times total revenue in 1995.
The Iomega stock price may go up further due to the frenzied momentum of its rise. However, one thing will be certain -- some people will get seriously burned when the speculative heat is over, say analysts.
(Ning Huang/19960522) |
