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Nautilus Inc. Message Board

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  • astral_tsar astral_tsar Apr 25, 2003 1:30 PM Flag

    NEW PRICE COMING SOON!!!

    $20

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    • << $20 >>

      Why would anyone pay over 12x earnings for a company with negative earnings growth ?

      If I want a dividend-paying stock in a slow-growth company, I can buy XOM or CVX.

      • 2 Replies to qwe76101
      • qwe76101 asked a very relevant question:
        "<<$20>>
        Why would anyone pay over 12x earnings for a company with negative earnings growth ?

        If I want a dividend-paying stock in a slow-growth company, I can buy XOM or CVX"

        Rather than give a full answer I'll point out that XOM is priced at 16 times earnings and CVX at 60 times. (In every case I'll use the more pessimistic of trailing, leading earnings, as forecasts are notoriously unreliable.) XOM's cash roughly equals debt. CVX's debt greatly *exceeds* their cash. All three pay comparable dividends, 3 to 4%.

        NLS, by contrast, has a couple dollars of cash per share and no debt. Subtract $2 from $20 and you get $18 acquisition cost net of cash. That makes the less-favorable leading P/E equal to 18 / $1.60 = 11.25 . So if I value NLS as a "slow growing dividend payer" and compare to your examples, I should receive at least a P/E of 16:1 (plus maybe $2 for the cash in excess of debt) for my shares. If I do that I get 16*$1.60 + $2 = $25.60 + $2 = $27.60.

        I would sell before the price got that high ... just working out the implications of what I thought at first was a criticism of my post. Thanks for the question.

      • Now, I've read a lot of messages here lately that freely use the fancy neologisms "negative earnings growth" and "trailing earnings value trap." Neither has -- to my knowledge -- ever been posted here with any actual earnings *data*. I'll try to address that in this message.

        data: (000s)
        Year.....Sales...RptdEarngs......Margin
        1994.....4415.....-510..........-11.6%
        1995.....4772.......15............0.3%
        1996.....8517......693............8.1%
        1997....21546.....2421...........11.2%
        1998....63171....12485...........19.8%
        1999...133079....20343...........15.3%
        2000...223927....41626...........18.6%
        2001...363862....66584...........18.3%
        2002...584650....97887...........16.7%
        3year
        mean:..391000....68699...........17.6%
        forecast:
        2003**525000****52800***********10.0%

        I see a very disappointing year. But that's one number ... and in fact only a forecast, not reported data. Even if I act as though the forecast were real data, I don't see any "trend" of "negative earnings growth." I see a bad year.

        I (and my call and stock positions) don't quite get the prospect of bankruptcy from a *forecast* disappointing year (hasn't actually taken place yet, remember).

 
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