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No. of Recommendations: 3
Glad to hear open critical discussion of BARRA. Why all the misguided worry about its stock price though? We've seen dips in the past and we'll see plenty more in the future I guarantee--it's inherent in our investment strategy (small float, high demand.)
The stock price has nothing whatsoever to do with the company's value as you all well know--its value is derived from its superior business model and our management team which continues to blow expectations out of the water. This is not something we can propose to accurately measure in terms of mere dollars per share price. Yes, in my humble opinion, the company is undervalued--it will be undervalued tommorow, the next day and for a long time to come. Why scrutinize over 10, 20 or even 30% 'over-valuation'? If you've truly got a long term perspective it will not matter in the least years from now when your shares have compounded many times their current market price. Assuming... So, chasemarmot and any others, I'd say now is as good a time as any to jump in assuming you've become familiar with every detail of the company's business that you can, regardless of its current market price--after all, what a most wonderful position we are in to have the vision to be worried about a meager 30X earnings when other, more emotional segments of the market will unknowingly rush into a stock valued at 300X earnings. Phil Fisher was right, conservative investors DO sleep better. Speaking of which, in answer to some valuation concerns, I'd like to take you all back to Fisher's Common Stocks and Uncommon Profits. 'Does not the matter of when to buy become of relatively minor importance? Once the investor is sure he has definitely found an outstanding stock, isn't any time at all a good time to buy it?' He also addresses some concerns about stocks pooping out after a good run-up as some of you are afraid will happen. He compares a stock to workers. On one hand, a college grad who has consistently produced quality work and received numerous raises, on the other, a high school drop-out who produces poor work and doesn't agressively seek promotion. Would you put your money in the drop-out expecting an eventual run-up in his 'stock' (salary) rather than bet on the continued success of our degreed go-getter because you think he's hit the ceiling? For those of you who haven't read this book, chasemarmot, I'm looking in your direction, I think it's essential to intelligent investing (incidentally, the Oracle of Omaha concurs.)
To back up my presumption of BARRA's value:
ROE: >30%,
Net margin: 20% (Mgmt estimates 30% by 2002),
$100 million in cash (about $5/share), zero debt to speak of,
5 yr. avg. sales growth: 28%,
5 yr. avg. earnings growth: 30% (with ERM growth showing even more promise, not to mention developments to come),
90% renewal rate (almost predictable revenues),
At least 2/3 market share by my estimates with no competitor greater than 1/3 its size, none directly. Given its apparent economies of scale, pricing power and barriers to entry dare I say it? Mono... no I shan't.
I could go on and on but I'm sure most of you already know these things--just remember them when the seas get rough.
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