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Technology Stocks : Trimble Navigation -- Ignore unavailable to you. Want to Upgrade?

To: SKIP PAUL who wrote (2728)	8/26/1998 6:02:00 PM
From: Yin Shih	Read Replies (1) \| Respond to of 3506

I've read the article referred to (thanks Skip for the pointer) and I'm not sure it can provide any extra enlightenment here. The principal point of the article is that earnings numbers are too easily manipulated to rely on as an absolute measure of corporate performance; whether that manipulation is deliberate or as an outcome of other managerial operating decisions. Rather the Economic Cash Flow (ECF - meaning the cash left over after paying for cost of goods and necessary operations, but before including marketing, R&D, acquisitions, and other reinvestment) should be the measure of quarterly/annual success. In fact I have long agreed with this viewpoint and Trimble's policy of reinvestment in R&D never bothered me per se. However, after making the point that Wall Street and investors pay too much attention to P/E and EPS, the author uses examples such as Cisco and Microsoft to demonstrate that their high P/E's result from sensible reinvestment of ECF (which reduces reported EPS) into their own high growth. In other words, his examples demonstrate that Wall Street and investors are quite capable of properly valuing those stocks despite their high P/E's and supposedly lower than "true" EPS's. Now perhaps his argument is that these companies are so thoroughly analyzed, compared to say a TRMB, that the "truth will out" but that other situations deserve more attention in order to sift the wheat from chaff. But what is left as an exercise for the reader is determining the true value of R&D, marketing, acquisitions, and other reinvestment that is the difference between EPS and ECF per share. Clearly, investing $1M in a GPS for buggywhips doesn't count as sensible. But what after that? One of TRMB's problems has been the slower than forecasted penetration of GPS technology into major markets. I'm guessing this has resulted in a devaluation of some of that R&D as it became obsoleted before it ever had a chance to generate major returns. As an aside, the author points out that one of the strongest correlations of market value to a performance measure is that of increases to Book Value per Share, but he then skips past this point. Looking at the latest TRMB annual report, the reported increase to Shareholder's Equity versus return on stock value is: Year = BV => %BV change -> TRMB Cum. Return (relative to NASDAQ) 1993 = $39M => (baseline) -> 123 1994 = $54M => +38% -> 194 1995 = $130M => +140% -> 219 1996 = $124M => -5% -> 135 1997 = $139M => +12% -> 257 1998 = ??? => ??? -> ???