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Pastimes : Home on the range where the buffalo roam -- Ignore unavailable to you. Want to Upgrade?

To: Sig who wrote (12666)	4/15/2001 12:39:03 PM
From: mishedlo	Read Replies (2) \| Respond to of 13572

Canada's National Newspaper RIM by the real numbers doesn't quite add up globeinvestor.com. Whoever devised the use of "pro forma" in financial statements should be proud. The expression has such a clean, positive ring to it for something that muddies the waters. No wonder its use is flourishing. Research In Motion is by no means the most conspicuous "pro-forma" user -- it has plenty of company. But RIM is no slouch. Take its latest earnings. The pro-forma numbers resulted in a profit of 11 cents (U.S.) a share. If you include all shares, those earnings are diluted down to 10 cents a share. But the pro-forma profit includes $11.24-million in investment gains. Excluding these, the diluted profit becomes a loss of 4 cents a share. Why exclude them? Clearly because the company, and its brokerage boosters, think it's acceptable to exclude investing losses. The difference between the real and the pro-forma earnings is a $14.75 million writeoff on investments, incurred, in the company's newspeak, because of "significant non-temporary declines in their value." It therefore seems like an "unbad" idea to be consistent. You can't just decide that it counts when you're lucky in the market, but that it doesn't when you're not. So the pro-forma bottom line should be a gain of 1 cent a share, assuming a pro-rated tax rate. Otherwise it's a loss of 8 cents a share. You can have one or the other, but not a selective blend of the two. And frankly, neither is that attractive. These aren't the only numbers that investors seem to be overlooking. RIM insists that its business is different from other gadget makers such as Palm and Handspring because it offers subscription services. So one would think its subscriber growth would have been a matter of much interest. Yet it came up well short of analysts' expectations. Not the kind of numbers that inspires confidence -- unless you're short. Are GE stocks worth it? General Electric has managed the improbable again, increasing earnings and revenue in a climate that is hurting most everyone. Investors did some rare cheering, but they have a long way to go before the stock regains its high of about $60 last year if they do. Despite having sold off about 33 per cent since then, GE shares are still changing hands at 34-times trailing earnings. Are they worth it? A realistic estimate of the company's potential rate of growth is easy enough to calculate. Multiply the percentage of earnings not paid out in dividends -- 55 -- by the company's rate of return on equity -- a stellar 25 per cent -- and you get 14 per cent. GE has actually managed to grow per-share earnings at a slightly better rate -- 16 per cent annually on average for the past five years. But still, the premium looks high. The rising P/E ratio over most of that period attests to how much the rising stock price has outpaced the earnings growth. This might not be a major concern if the earnings could be relied upon to continue growing so fast. But will they? Cost cuts are playing an increasing role in GE's profit increases. Obviously, that only lasts so long. In fact, the rate of improvement in margins is showing signs of slowing. That leaves growing revenue. Given its base of $130-billion in revenue, it's becoming impossible for GE to grow sales organically. That leaves acquisitions. But here too, size is becoming an impediment. GE's safest acquisition targets are those that operate in similar business. The synergies from merging the businesses are the only way to justify the prices it has to pay. That's why it has bid for Honeywell. But that deal has been delayed by anxious European regulators who may scupper it. If the market starts taking a more sober look at GE's growth prospects, the stock price is likely to follow the multiple -- down. It's a vicious circle Investors might be on the verge of being wrung by a vicious circle unfolding in the markets. Given the enthusiasm in stock trading, the expectations of an interest rate cut by the U.S. central bank must be high. There's not much other news to inspire such buying. And yet, judging by the futures market, the odds of a rate cut are falling as the stock indexes rise. Fed futures have gone from suggesting an inter-meeting 50-basis-point cut to not quite endorsing the likelihood of 25 points when the Fed meets again. If weak stock prices are one of the factors central bankers use to decide on a rate cut, they may have to give themselves a reason to cut rates further down the road by doing nothing in the near future. ============================================================ I was going to do a comment on interest rate cuts suggesting the same. It appears I do not have to.