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No. of Recommendations: 3

Thanks for the objective review. I think the metric that may have been referred to is the PEG ratio. It is a comparison of P/E ratio relative to to the 5 year annualized forward growth projection. Currently, first call projects CREE to earn $1.33 in FY2001 (whether this is conservative or not is up for debate, it is the published estimate at this time). Today's closing price was $90.375. Thus the FY2001 forward P/E is:

$90.375/$1.33 = 68

Many estimates put CREE FIVE year annualized growth rate at 40%. Thus, the PEG is:

P/E Ratio/5 yr forward growth

68/40 = 1.7

Fair value is typically indicated by a PEG of 1. Thus, in order for CREE to have a PEG of 1, they would need a P/E of 40. To get a P/E of 40 given the $1.33 EPS estimate, the stock price would need to be:

X/$1.33 = 40

X = $1.33 * 40

Price = $53.20

Typically, tech stocks may trade at a premium to their fair value due to the potential forward growth. But with the Nasdaq appearing heading for some possible short term volatility, who knows?
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