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Technology Stocks : FORE Inc. -- Ignore unavailable to you. Want to Upgrade?

To: ravi mali who wrote (7367)	2/12/1998 9:41:00 AM
From: Igor Nasonov	Respond to of 12559

PEG estimation for FORE (12 month forward EPS estimate) I learned how to calculate PEG from Wayde Bendus (BAY thread) 207.183.153.5 However in calculations instead of FORE Current 5yr projected growth rate (190.67) I'm going to use FORE Current 3yr projected growth rate (88.46) because i consider it more realistic. PEG = 0.36 = (16.625 / ((0.32 - 0.22)+(0.75 * 0.57)) / 88.46) PEG - Price/Earnings to Growth Ratio (Growth is TYPICALLY a 5yr Estimate) 16.625 - FORE's Closing price yesterday 0.32 - Fiscal Year 1998 estimate of earnings for FORE 0.22 - Earnings posted after 3 quarters of FY98 0.75 - Three Quarters 0.57 - Fiscal Year 1999 estimate of earnings for FORE 88.46 - Current 3yr projected growth rate for FORE PEG = (Curr.Price / 12mo.EPS.est) / 3yr.Growth.Rate PEG = ($16.625 / $0.53) / 88.46%) PEG = 0.36 So far we have completed three quarters in FY98 (Q1, Q2, Q3), which leaves us with one more to go (Q4). Since earnings estimates are for $0.32 for the fiscal year ended March '98, we need to subtract the $0.22 that we have accumulated so far towards the estimate ($0.32 - $0.22 = $0.10). For the next three months we have determined that estimates are for $0.10 and now we need to get another three months to account for the full 12 months of estimated earnings that we need. In order to make the calculation simple, I just took the remaining one quarter needed (1/4 or .75) and multiplied it times the full fiscal year earnings for 1999 (.75 x $0.57 = $0.43). In short, with the three quarters of FY98 completed, we need to look into the last quarter of FY98 and the first three quarters of FY99. Therefore, the total estimated earnings for the next 12 months is $0.53 ($0.10 + $0.43 = $0.53), which gives us a forward PE of 31.37 ($16.625 / $0.53 = 31.37). Then just put that PE over the 3yr expected growth rate for FORE (31.37 / 88.46 = 0.36) to get the PE/G. PEGs are used to evaluate how much of the long term growth rate of the stock is currently being eaten up. With FORE's PEG = 0.36, that leaves a lot of PEG to be eaten considering that historically for tech stocks PEGs have been in the 1.10 to 1.20 range on average. Typically PEGs less than 1.00 have come near bottoms in tech stocks and PEG's over 1.40 have come near tops. The PEG is just one of a gazillion ratios that you can use to compare companies with. Comparing the PEG of FORE (0.36) with a BAY (0.87) clearly shows that, relative to PEGs, FORE is a an excellent value. BAY has very attractive PEG too. I hope this will clear things up for you and give you a little insight on yet another way to compare the values of stocks. Thanks a lot to Wayde Bendus from BAY thread for lesson how to calculate PEG. Happy PEGgin' :), Igor