To: JRI who wrote (88239 ) 3/31/2001 11:31:10 AM From: marginmike Read Replies (2) | Respond to Look Ill say it 1 more time, it is as clownish to make analysis on EYE-BALL hits or discounted earnings 5 years out then it is to base a stock analysis on REVENUES. The only thing that matters is EARNINGS(assuming they are of the real variety not like the CSCO/DELL stuff). Price to sales is a worthless metric, Otherwise Supermarket chains, and resteraunts would be all the rage. I dont follw CHKP, and wont argue about Qcoms valuations for other fundimental issues like 3G roll out, earnings sustainability etc. However basing a negative view on Qcom because of a high Price to sales ratio is short sighted. I had this debate with CHIC the other day. If you were buying a business in the real world, ie resteraunt, car wash, store etc you would buy it based on its free net income and times it buy a multiple. The same is said about buying investement property. Would you buy a business with a million in sales with 1% margins or a business with 400,000 in sales with 30%? Now if you take that process to stocks, what Qcom P/S is irrelevent if they have 50% margins which have improved every quarter for 2 years(almost). At one time Qcom owned LWIN,Handset division, Infrastructure division all of which loose or make next to nothing. If we put those back in the mix Qcom's revenues would be 2-3 times higher then they are. The handset at the time of sale I think was 2 Billion alone, add 2 years of growth thats 3Billion and infra is worth at least 2 billion as well and Lwin is a hundred mill or so. So now the rolled up company has almost 10 Billion in revenue and 10% margins and is selling at 4X sales. Is it then a better stock price? Qcom makes 90% margins on royalties and close to 40% on chips(getting better with new chips). They also will garner higher percentage in each phone sold due to BREW(software) and SAWS replacing chip then combines several diferent functions into one chip. The CDMA market is growing within the overall mobile market, whille Qcom garners higher % of that Business through phone content(more chips in phone) as well as software now. They will be the first to market with multi mode(GSM/TDMA/CDMA) chips. The mobile biz is still growing albeit slower Qcom will have a nice growth rate and at 20-30 TIMES EARNINGS is a stock to buy not to sell. Assuming they make 1.30 in 2001 the PE is arround 40. So yes Qcom could drop another 10-15pts. However thats assuming a real worst case scenario. At 35-40 I am a buyer and you can call me Clown boy if I am wrong! I think they will make 1.60 next year so at 35 its got a forward pe of 21. At that point I will buy and hold.
