S.A. Advisory E-Mail Update
April 21, 1998
Web Press operates in a segment of the graphic arts industry. Its primary business is the manufacture and sale of rotary offset, web-fed printing presses. These products are designed for the use in printing newspapers, shoppers, advertising inserts, paperback books and similar products.Quick Facts:
SELECT FINANCIAL DATA
Note S: During 199 company paid out to an officer $400K. If this had not happened the company would have earned .08/share!!!!!!!!!!!
We will first examine PE ratio for 97A and 98E. The parameters that we will use for PE valuations will be a very conservative value of 10, the current s & p vaulation of 25 and 1/2 the actual growth rate (1997) and est. growth rate for 98.
During 97 WEBP earned .11/share- if we assign the value parameters listed above then our share price could be $1.10, $2.75 and(97 growth rate over 96 was 48%- so half of this value equals 24%) $2.64. If we use the same parameters using managements conservative earning est. (98) then our share valuation should approach $1.50, $3.75 and (growth rate for 98 revenues are est. at 30%-we will use a 15 for our calculation) $2.25.
Food for Thought::: Upon reviewing the recent Forbes Magazine(April 20,98) it came to our attention that most companies in the group are trading at 50% over the projected growth rate. If we were to assume this mouth watering scenario, then based upon our earning est. for 98 and anticipated growth rate of 30% then our share (NOTE: 50% above 30% Growth rate yields a PE valuation of 45X with earning of .15) price would migrate towards $6.75. If we used the PEG investment tool- that is, PE/G (PE ratio/growth rate) our high stock valuation would be varified! Assume - based upon our est. earnings of .15 for 98 and the growth rate of 30% and a current share price of $1.18- our calculation yields us a PE of 7.8 and if we divide the growth rate into that # we get a PEG valuation of .26-( A PEG with a value of 1 is considered cheap and undervalued). In order to achieve a value of 1 our share price would be 4X the current level of $4.72 based upon 98 est. A far cry from current levels.
Our next investment tool that we will apply to WEBP is PSR (price to sales). A value of 1 is considered cheap and undervalued. According to our calculations 97A yields a PSR of .37, while 98E yields a PSR of .28. If we only achieved a value of 1- the WEBP would trade at $3.15 based upon 97S #'s and a value of $4.15 based upon 98E #'s. Again, a far cry from its current share valuation.
Another investment tool that must be applied to WEBP is ofcourse cash flow (net income + D & A). We will apply a very conservative value of 10X and an average of the Forbes 500, that is, 17X. Upon applying these parameters to our est. 98 cash flow value/share we calculate a conservative value of $2.20 and using the Forbes as a comparable tool our share value based upon 17X yields a share est. of $3.74.
Our last ingredient of fundamental ananlysis will ofcourse be book value or shareholders equity. At the end of 97 WEBP had a stated book of .87 and an est. 98 value of $1.02. In our opinion this ingredient is not as important as PE, P/CF and PSR because true book today can be very deceiving, which ofcourse results from changing accounting regulations. We will apply a price to book of 3 to 4X in order to fully value WEBP. Based upon our evaluation of this scenario-WEBP could trade at $3.06 to $4.08 based upon our evaluation.
Corporate phone #-------253-395-3343
For all investor types: We usually position ourselves in most recommendations and or featured situations.Rev and earnings est. are formed via management overview! Our trading habits may vary !! We may buy and or sell shares at any time.. Please review all SEC filings before you invest.
Yours Truly , William Velmer http://www.saadvisory.com ps. We intend to monitor WEBP in our master E-mail porfolio and Summer port 1997.--"new" newsletter coming soon with expanded story on TGSK & WEBP
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