Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 3
Allen,

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?
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.