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Technology Stocks : JDS Uniphase (JDSU) -- Ignore unavailable to you. Want to Upgrade?

To: KMcKlendin who wrote (20600)	6/21/2001 9:53:34 PM
From: Cary Salsberg	Read Replies (1) \| Respond to of 24042

Your P/S is way off. Next quarter's $450M annualized is $1.8B. They have ~$1.1B shares outstanding. Sales per share is $1.64 and the P/S is about 7.

To: KMcKlendin who wrote (20600)	6/26/2001 2:41:37 PM
From: Jacob Snyder	Read Replies (2) \| Respond to of 24042

Re JDSU valuation: Sorry it took me this long to respond. I was off kayaking with the kids, and am just now back. You use PE, P/S, and P/B to back up your belief that JDSU is currently undervalued. Let's leave P/S aside for the moment, and talk about PE and P/B (which are related, in JDSU's case). Let's take a hypothetical: A company pays 10B$ for an acquisition, when times are good. They use their stock to do this. A while later, the market says that stock is worth only 1B$. Now, the question is: should an investor consider that the company's management has lost 9B$ of stockholder's money? And, if so, how should this be accounted for? If you use "pro forma" earnings, then you are deciding that management hasn't lost 9B$, and hasn't made a bad decision. Using "pro forma" means you don't consider the cost of the acquisition when it was made......or later, either. The cost just disappears, and we don't think about it. This is unrealistic, IMO. Management really did spend 10B$. Using stock which has now depreciated, doesn't really change that. Of course, it would have been even worse if they had used cash. And worse yet (in fact, so much worse that they would be a bankruptcy candidate) if they had used debt to finance that acquisition for cash. Paying for acquisitions with stock, in a bear market, is like paying with cash in a time of severe inflation. The dictionary definition of "pro forma": "as if", or "hypothetical". My definition is: "bogus". I think, for a lot of tech companies (especially those that have been doing a lot of acquisitions, and paying for a lot of expenses with stock), the "pro forma" numbers should be considered lies. There just isn't any polite way to say it: companies like JDSU and CSCO and LU, and so many others, have used Creative Accounting for years, to give a totally inaccurate (and far too optimistic) picture of their company. The GAAP method of accounting for acquisitions is to write it off over a number of years, in a rigid linear fashion. In JDSU's case, the acquisitions are considered to consist of almost all (evaporating) goodwill. That goodwill gives JDSU an official book value that is an absurd number. The stock market is saying: "that book value is bogus". The consensus of investors today is: "the future cash flow from those acquisitions is going to be a small fraction of what JDSU's management thought it would be when they made the acquisitions." IMO, GAAP accounting is better, but still gives a too-optimistic picture of the company. Now, over the last few years, the spigot for telecom capital investments has been wide open, a situation which is a historical anomaly. The telecom buildout will resume at some point, but we will probably never again see the go-go environment of the recent past, not in our lifetimes. And, according to GAAP accounting, JDSU lost money during those go-go years. If a company can't make money when everyone is throwing money at the sector, when can they? The only way to conclude that JDSU has been net profitable over the last 5 years, is to ignore the cost of acquisitions. If you take all the goodwill out of JDSU's book value, what's left? Not much. In fact, almost nothing. Plug a near-zero number in the denominator of your P/B ratio, and you can't use P/B to say JDSU is undervalued. In fact, using Book Value for a company like JDSU (or any company with almost no hard assets) is a meaningless exercise. IMO, that's the right way to think about it. And, if you use GAAP, and average the last several years,then your PE ends up being a negative number. Not reassuring for someone looking for Value.