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Technology Stocks : Western Digital (WDC) -- Ignore unavailable to you. Want to Upgrade?

To: Zakrosian who wrote (7805)	11/23/1997 8:02:00 PM
From: Pierre-X	Read Replies (1) \| Respond to of 11057

Re: History of forward multiples You said: ...is it possible that the higher PE's occur at a time when earnings are declining and the price has dropped because investors assume that at some time the cycle will reverse and earnings will rise? In my experience, I'm afraid the exact opposite has been true. Peak multiples occur during periods of prosperity. A company that beats the estimates for several sequential quarters generates investor excitement and rising multiples against both current and estimated earnings. One example from recent memory would include WDC itself. The recent high of $54.75 in late Aug vs TTM EPS of $2.26 corresponded to a TTM PE at the time of 24. My GUESS for the estimate at the time assuming a 25% EPS growth factor is $3.96, a forward multiple of 14. Both are historically high for the company. If you have hard data on the mean estimate at the time you can confirm this. Now as we head for the bottom multiples reverse to historical lows caused by investors abandoning ship after a series of bad news and sharply declining share prices across the entire sector. Another example is MU. Its recent high of $58, also this past Aug, came with a TTM EPS of $1.30 giving a multiple of 44.6!! For a cyclical DRAM company!! I was eyeballing puts on that sucker but at the time I was researching other sectors. Conversely, at MU's nadir of $17.25 was in Jul 96. My EPS data doesn't go back far enough but the TTM multiple then was well below 10. There are many other examples but generally we see the high multiples in good times and vice versa. Ergo, I still think we MAY see $15 in WDC. But I'm not short the stock. <g> PX