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Technology Stocks : e.Digital Corporation(EDIG) - Embedded Digital Technology -- Ignore unavailable to you. Want to Upgrade?

To: sdr who wrote (7807)	9/22/1999 11:59:00 AM
From: JimC1997	Read Replies (1) \| Respond to of 18366

sdr, I agree that conventional analysis is not very useful for early-stage companies like e.Digital. You make a very good point that the first couple of years may see very low EPS as the cash flow is plowed back into R&D and organization growth needs. Actually, that's why most analysts evaluating high growth potential companies like e.Digital take their valuation out a number of years and try to assess the "steady-state" operating characteristics of the company. This requires more guestimating about market size, growth rates, share of market, operating profit margins, etc., but it works surprisingly well to predict the future value of the company. Then once the future value can be agreed upon, that value is discounted back to the present (at a rate equal to the expected overall equity market return rate) and a present "fair value" for the company is arrived at. I concur with your assessment that the total potential value of e.Digital is considerably higher than the $12/share value that I toss out for consideration. Clearly, a careful analysis of e.Digital would assess each market opportunity that their technology affords them. My thought is that the market will eventually ferret out all of those prospects and assign a rational value to each, adding to e.Digital's market valuation as more positive information is uncovered over time. However, in the initial burst in market value change after contracts are announced, only cursory analyses like the one I presented will be done and the stock may top out (temporarily, I am sure) at something in the general range that I suggest. When I made my comment about the market giving no credit to future growth prospects, it was in the context of trying to assess how the stock might temporarily fall to a price of $6 once the expected music player business has been quantified. I did not mean to suggest that this would be anything other than a temporary aberration and, in fact, it would present a very attractive buying opportunity at that time (if it occurred). Over time the markets are very efficient and if e.Digital can build credibility with its initial product ventures, the subsequent market capitalization will be limited only by its own creativity and energy.