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Technology Stocks : TLAB info? -- Ignore unavailable to you. Want to Upgrade?

To: jmac who wrote (4780)	1/17/1999 11:32:00 PM
From: michael r potter	Read Replies (2) \| Respond to of 7342

A tale of two companies. We'll call them company A and B. Both are fine companies with engs. growth rates projected around 25% the next two years. Here are a list of some characteristics of each, with A listed first in each comparrison followed by B: 5 yr. engs growhth rate: 55%vs37.7%, Roe: 28.6% vs19.3%, ROA 24.5%vs15.1%, Profit margin: 23%vs16.7%, Current assets vs. liabilities: A, 4 to 1 vs. slightly over 2 to1 for B. So far, would you agree that company A has the better report card? But wait, there is more. For calender year '99, A is projected to earn $2.40 and for fiscal year July '99, company B is expected to earn $1.47. OK, you guessed it, company A is Tellabs selling at 36 X '99 engs., but how about company B and what does it sell for? Hint, it is also an institutional favorite but is selling at a 69 P.E. multiple of FY Jul. '99 est.! Price, $101.69 per sh. What is the company? Try a little networking company called Cisco Systems. The point of this exercise is to show what a fine company TLAB is -even compared to the cream of the crop. It is also to show what kind of valuation TLAB could conceivably achieve if they continue to execute and broaden their product line. Now one could argue that maybe CSCO shouldn't be valued so richly, but the market is voting with its pocketbook, and it gives some indication of the potential forTLAB. In many ways, the track record is superior to CSCO and has ample room for multiple expansion. A 40+ PE, is justified. Don't take it to the bank, but a 50 PE on current Engs. is feasable. That would put a 2 year price projection in '01 of: est. engs., $3.80 X 50 P.E.=$190. Don't count on it, but on the other hand... don't be surprised. Incidentally, using a '01 time frame is arbitrary and is an attempt to frame the big picture in a way that puts the day to day noise in perspective. Before leaving, take one final look at the comparrison numbers at the top. Company B is quite impressive, Company A is worth owning, woudn't you say? Mike