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Strategies & Market Trends : Disciplined Investing, especially the NAIC way -- Ignore unavailable to you. Want to Upgrade?

To: - with a K who wrote (302)	1/28/2002 10:29:34 PM
From: The Philosopher	Read Replies (1) \| Respond to of 469

Great info -- thanks. I'll look at it. Just got the investor packet for Shaw Group, SGR. They're a vertically integrated provider of piping and other engineering systems for the power generation industry. If you've ever seen a major refinery,or a nuclear power plant, you know what the piping systems require. Needs for power, particularly in the third world, are only going to increase, and I think Shaw may be a valuable player in this. BUT, I haven't started my real analysis yet, so this is mainly an inquiry whether anybody else here has looked at them or knows anything about them.

To: - with a K who wrote (302)	1/29/2002 8:23:28 PM
From: The Philosopher	Read Replies (1) \| Respond to of 469

I took a VERY QUICK -- I emphasize that -- look at MHK. Using the AAII data disk, which I think is the same date NAIC sells, what concens me is that sales have basically flattened off, despite 2001 being one of the best years in home building. Maybe they're more in the commercial market? Historical sales growth has been in the 25% range, per the front of the SSG. But if you outlie the first five years and only look at the last five years, it drops to 10.4%. And it's been pretty much totally flat this year. If you look at the Pert A, quarter-over-quarter sales, the last time they were in double digits was 9/99, and the last five quarters have all been under 4%, with two negative quarters. This sort of slowdown is one of the key warning flags for me; if sales slow down dramatically, either they have to pick back up again equally dramatically, or earnings are going to start to collapse. They've been able to increase their profit margins nicely--from an average of about 5% to a recent average of 8%, or up over 50%, which has caused the earnings not to fall off the way sales have, but can they keep these profit margins growing? If not, and if sales don't pick up, earning growth is going to come to a screeching halt. The DTL merger may help, but will the earnings per share go up? Don't know how they're structuring this deal. From the S&P report, almost all the growth projected seems to come from the DTL merger. Will it be a smooth merger? Has the market fully accounted for it? Another issue for me is that it's near its 52 week high, and in fact it's at the end of a long run up, from 20 a year and a half ago to the mid 50s now. Can it continue that? I haven't looked at the fundamentals at all yet. So there may be reasons to think sales growth will rebound, or it may be that the stock price has overcompensated for the sales slowdown. Certainly the PE has dropped right off. Using the Preferred Procedure and a 10% sales growth rate, I get five year earnings of 3.83. Using the calculated average high and low PEs, I get a high five years out of only 63.2, using the severe recent market low of 18.4, this gives me a sell signal. Even throwing in a 15% EPS growth figure, I still wind up with five year earnings of 5.76, and on the same PEs and low, a Hold, with the buy range (on 25-50-25 zoning) topping out at 37.6. This is only a preliminary look. And don't want to throw cold water. But frankly, I don't intend to spend time on further analysis; I just don't see it's going to get the results I want over the next five years. Now file this message away and come back in five years when the stock price is 120 and tell me how dumb I was not to buy it!