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Hi there,
we have been reading your posts about DNA and find them very helpful. we are thinking of buying some DNA shares below $50, however, one thing that concerns us is this: why is DNA's p/e ratio so high (600 on yahoo's site) compared with AMGN's 52? does this not sound like YHOO in its hey days?

appreciate any feedback/comments.

cheers
lim
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I will take a crack at this one but keep in mind that I am a scientist, not an accountant so if I make any mistakes please point them out. Due to the Redemption event, accounting changes, and legal costs, I find Genentech's financial statements a bit tough to wade through.

I obtained my data from the earnings press releases located on Genentech's website: http://www.genentech.com/gene/investor_relations/financial_info/earnings_releases.html


As P/E ratios are usually derived by using earnings from the last year, I will use Q2-Q4 of 2000 and Q1 2001 data in my calculations. I obtained the numbers by going through each quarterly earnings report and tallying up the income and EPS numbers.

So for the last 12 months:
Actual Net Income = $31.5 million
Actual EPS = $0.08

Pro forma Net Income = $338 million
Pro forma EPS = $0.64


So today, Tuesday, Genentech closed at $50.25. Since I believe most sites such as Netscape and Yahoo must use the actual #'s then the P/E comes in at 628 or so, and thankfully this is the same as what I found at marketwatch.com so my math looks ok.

This high P/E should not be cause for concern for two reasons. First, if you don't understand the Redemption event check out Genentech's SEC filings and earlier threads in this board for an explanation. These charges absolutely kill the earnings figure while not having anything to do with the business whatsoever. So using the pro forma EPS we now get a P/E of 78.5, which is still high by most accounts, but definitely not as bad as 600.

I hope this answered your question
Charly
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Good post from jrbill94.

Just had to say you made me laugh out loud with the "Yahoo in it's Haydays" comment. Don't know why, I just find that sentence funny... hehehhee, still snickering.
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This high P/E should not be cause for concern for two reasons. First, if you don't understand the Redemption event check out Genentech's SEC filings and earlier threads in this board for an explanation. These charges absolutely kill the earnings figure while not having anything to do with the business whatsoever. So using the pro forma EPS we now get a P/E of 78.5, which is still high by most accounts, but definitely not as bad as 600.


Okay but it's still money off the income sheet. If that wasn't on there they'd still have the cash in the bank, wouldn't they? Or is this just some kind of funny money? Any accountants out there? I just don't fully comprehend how it can come out of their income without really affecting just that...their income.

Sascha
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Dna consensus 2001 earnings are .75/share. 2002 earnings projected at .94/share. (yahoo financial board) . That translates into is a p/e in the 60's or so.

Revenues were growing at 30%, and now it appears on the verge of accelerating ,as late stage clinical trails approach successful completion. If all of that stuff is true, and the firm maintains its high growth, its present peg of 2 or so is within the norm.

Nonetheless, the potential high return is associated with high risk, so be smart

drax
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