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Technology Stocks : Vitesse Semiconductor -- Ignore unavailable to you. Want to Upgrade?

To: Bruce R. Schlake who wrote (3386)	2/29/2000 3:57:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 4710

Bruce, I don't think the issue is selling at an arbitrary multiple of what you paid for the stock. Instead, I ask myself what the stock ought to be worth given reasonable valuation parameters. For example, suppose that we project VTSS as a "mature" company, growing cash flow at roughly 10% per annum. Let's assume, for the sake of argument that that will occur 10 years from now, at which point we might project, given reasonable multiples, that the stock would trade at roughly 15x cash flow. Now let's assume that the current free cash flow is around $.90/share (I don't recall the exact number). So, in 10 years the cash flow would be approximately $12.41 per share, and the stock would trade at around $186. With the stock currently trading at $105 that provides a return of less than 6% per annum for the holding period. Even if the proper multiple were 20x FCF, the holding period rate of return would be less than 9%. Given the fact that the semiconductor industry is risky, I, as a shareholder, would demand a rate of return considerably higher. It seems to me that the current valuations discount growth well in excess of 40% for the next 10 years. But this number is well in excess of the projections I have seen. TTFN, CTC