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

To: michael r potter who wrote (4875)	1/26/1999 12:26:00 PM
From: Chuzzlewit	Respond to of 7342

Michael, while I share your enthusiasm for the company, I am baffled by your mathematics. Assuming that eps grows at 35% per annum, eps for 2001 would be $3.77; if you assume that total earnings grow at 35% we would have 725.9 MM, and if you assume that fully diluted shares continue to grow at their current rate we would have 204.8MM fully diluted shares, and hence eps of $3.54. Projecting a future P/E is dicey. P/E is inherently a poor metric because it depends on last year's earnings and today's price. A forward-looking P/E makes more intuitive sense. Beyond nit-picking your choice of a metric, it is important to be aware that the P/E is highly sensitive to three factors: 1. Perceived growth of future free cash flows; 2. Perceived riskiness of achieving those free cash flows; 3. Long-term interest rates. Instead of using a projected P/E and projected earnings, neither of which are accurate because a lot can happen in two years, I look at the price of projected growth of the S&P and the price of projected growth for TLAB. I divide the latter into the former to give me what I call a CNPEG (Chuzzlewit's Normalized PEG). Last I looked (and I'm working from memory here) the S&P had a P/E of around 26 and a growth rate of 9%. That gives us a YPEG of roughly 23.8/9 or 2.65. Now TLAB, by comparison, has a price of $87 and earnings of $2.07, and putting this on a YPEG basis, we would have $87/$2.071.35 35 = 0.89. Dividing 0.89 by 2.65 yields 0.34 -- on the Chuzzlewit meter this makes TLAB a screaming buy. TTFN, CTC