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Microcap & Penny Stocks : VLVT (was CSMA) -- Ignore unavailable to you. Want to Upgrade?

To: charles messick who wrote (2001)	11/29/1997 2:48:00 PM
From: Carlton A. Byrd	Read Replies (2) \| Respond to of 11708

Trader, Questions: 1. Does this mean the end of the squeeze? I think so?? 2. Will this news lead to a drop in price on Monday as investors are disappointed about increase in shares on hopes of greater eps? Thanks, Chauncey

To: charles messick who wrote (2001)	11/29/1997 3:14:00 PM
From: TraderGreg	Respond to of 11708

Here's a way compare a company's current price to one in the future . A stock with a P/E of 14 at a price of $14 and earnings of $1.00 per share. If this company had no growth rate, it would be like a bond pay 1/14*100 or 7.28% per year. The stock wouldn't rise because investors could always switch to a bond.(By today's low inflation market criteria, we tolerate P/Es as high as 20, or merely 5% return on investment). Now, if earnings are growing at a certain rate, we should be willing to assign a higher Current P/E in anticipation of the higher earnings looking forward. For example, a 50 % growth rate for the previously mentioned stock means $2.25 earnings two years from now or a price of (14)(2.25)=$31.50 two years from now. Using your own desired rates of return determines for YOU what you are willing to pay NOW for that same stock. The answer is somewhere above $14 and certainly less than $31.50, unless you feel the 50% growth can be sustained even further out. That is how the concept of PEG comes about (P/E divided by growth rate). The revised PEG that I used for CSMA is 0.5 based on P/E of 25 and Growth rate of 50 %. IMHO, the 50 % growth rate is conservative. The PEG of 0.5, however, is ridiculously low. Check the PEGs for other stocks and you'll see they're running over 1.5 and higher. I used this low PEG and correspondingly lower P/E so as not to appear as an overhype of the stock. Nevertheless, the PEG of 0.5 and the 50 % growth rate and the $.349 Earnings per Share do not necessarily mean that the stock will go there overnight. Some stocks get ahead of themselves, others lag. It's just one way of determining how the current price compares to that one estimate of fair value. Some people like Sales per share. It's good but must factor in the sector's typical profit margin. The tech sector, with ever declining margins, can have huge Sales per share values and still have insanely high P/Es. Whereas new technologies, with minimal competition, may have lower Sales per share but higher profit margins and still have a lower P/E. Personally, I like PEGs because it already factors in overhead and cost of goods sold. In a later post, I'll discuss how to separate printing press dilution of shares from share increases that accrue real value/earnings. TraderGreg