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Technology Stocks : Citrix Systems (CTXS) -- Ignore unavailable to you. Want to Upgrade?

To: puborectalis who wrote (7981)	5/5/2000 8:28:00 PM
From: puborectalis	Respond to of 9068

Also from Chuzzelwit recently....."I am looking to re-enter at a price under $50 (sorry thread), and am hoping that this sell-off is one of those moments when CTXS drops for no apparent reason. Having said that, I would point out that I think the stock was vastly overpriced at $100 in spite of the fact that cash flow from operations and free cash flow have been strong and improving steadily."

To: puborectalis who wrote (7981)	5/5/2000 8:34:00 PM
From: puborectalis	Read Replies (1) \| Respond to of 9068

Also from Chuzz......."As you well know, valuation is a very dicey proposition at best, and it comes close to crystal ball gazing when dealing with growth stocks. But let me start with a simple-minded hypothesis: CTXS will grow cash flow at a rate of 30% pa for the next 10 years, at which point it will suddenly become mature and trade at between 12x and 20x operating cash flow. Last year, operating cash flow was $184MM, so at this rate we would expect OCF to be around $2,537MM, and the company would have a market cap of around $30.5BB. The number of diluted shares outstanding has been growing at around 5% per annum, so in 10 years we would expect 315 MM diluted shares. This scenario implies that in 10 years the shares would be trading at roughly $97. If the multiple were 20 at the end of 10 years the shares would trade at roughly $162. Given that CTXS is currently trading at around $70, the annual appreciation varies between 3.3% and 8.7% for the holding period. The implications of this are clear. Based on the current stock price, investors expect higher growth rates and/or a longer hypergrowth period. Considering the riskiness of the stock it seems to me that the market is telling us that it expects growth well in excess of 40% for 10 years or more. But if you look at the historic growth, CFFO has grown around 37%, and if you calculate it on a per share basis, growth has been a more modest 30.7% per annum. I orginally bought into the company at $23 based on the expectations I outlined above. And those same expectations lead me to sell at $60. So what is the fair price of CTXS? I don't know, but it certainly isn't $70. I would think that something less than $40 makes sense. So why is the price of CTXS so high? I believe there is a logical disconnect between the way people think about stocks and the way they might approach buying a business. Only a raving lunatic would buy an entire business for 100x operating cash flow. It would require a certain degree of madness to buy at 50x OCF, and purchasing at 25x operating cash flow would certainly trigger questions about one's sanity."