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Author: stward One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 10679  
Subject: Re: Charts are for Target Practice Date: 3/28/2000 10:35 AM
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History repeats, but with a twist: I agree with BDKliewer completely, where the likelihood of repeating last year's chart pattern is concerned. The very fact of the pattern makes a repeat less likely, not more. Instead, the pattern moved to the biotech sector.

Fair Price: The comparison to AOL (for purposes of setting a "fair price") is less useful.

* The two companies, despite some similarities, are in very different businesses.

* The comparison implicitly assumes that AOL is "fairly priced".

A better way of estimating a "fair price" for EGRP would be to compare it against itself; you still need to be careful, because the business changes over time (e.g. adding banking services), but it will certainly be more relevant than AOL. Comparing the figures against other financial service firms is also useful, as a sanity check.

Obviously, you can't point to any one instant in EGRP's volatile history and say "that was a fair price", but this sort of comparison can give you some feel for the range of probabilities.

Q1 2000 Q4 1999 Q3 1999 Q2 1999 Q1 1999 Q4 1998 Q3 1998 Q2 1998 Q1 1998
Shares (x1000) 247163 247163 238918 237643 230104 226866 169140 166848 152948
Price / Share $32.00 $26.12 $23.5 $39.93 $29.15 $11.70 $4.67 $5.73 $6.23
Market Cap ($ millio $7,909 $6,456 $5,615 $9,489 $6,708 $2,654 $790 $956 $953

Price / Asset $ $0.1793 $0.1464 $0.1977 $0.3650 $0.3194 $0.1746 $0.0705 $0.0854 $0.0953
Price / Account $4,205 $3,432 $3,620 $7,646 $7,379 $3,927 $1,452 $2,083 $2,364
Price / Revenue (Qtr $32.15 $26.24 $32.42 $62.53 $52.88 $22.90 $11.50 $15.34 $17.87
Price / Net (before $133.46 $108.93 $201.27 $239.20 $181.65 $77.53 $76.73 $43.88 $155.75

Operating Margin 24.1% 24.1% 16.1% 26.1% 29.1% 29.5% 15.0% 35.0% 11.5%
Revenue / Account $130.79 $130.79 $111.66 $122.27 $139.55 $171.48 $126.22 $135.76 $132.28

Some things to note:
* Revenue per account per quarter is fairly consistent, so the number of accounts is a good leading indicator for future income. The average is $133 (+/- $15). The industry average is $145 or so.

* The price collapsed in mid 1998, between when EGRP announced that they would increase ad spending, and when the effects of the branding campaign began to be felt. You'll have to decide for yourself whether these figures are representative, or an anomaly.

* The figures for Q1 2000 are based on Q4 1999 revenue/assets/accounts, but using today's price. They are probably about 15-20% too high, but we won't know for a few more weeks.

If we take the price/revenue number for Q4 1999 and divide by four (to get an annualized price/sales ratio), we get something like 6.5. The average for the investment services industry is 3.17 -- but then, the industry's average growth rate is 21% per year, and EGRP grows that much in a single quarter (on average).

The average price/account is about $4000 (+/- $2000), so I'd be cautious about buying EGRP when the price/account exceeds $6000 -- but I should point out that this figure has gone as high as $11,000/account (briefly), so I wouldn't treat $6000/account as a strong "sell" signal.

You can make similar comparisons based on any of the other price measurements above.

-- stward
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