From "starter" ...
"Seng, how you can get a PE of 3.5 for EUROSP? Correct me if I'm wrong but I think the PE should be around 8 base on the current price."
Here are some simple facts about EUROSP:
1. Last night, EUROSP closed at $1.16. At this price, the stock is capitalized at $46.4M.
2. The TTM (Trailing Twelve Month) net earnings (PAT) is $7.2M, or 18.1 sen per share.
3. At the last Balance Sheet date (28 Feb 2007), the stock has a Net Cash of $22.2M, or 56 sen per share and nil borrowings.
4. This implies that EUROSP's underlying business is available for sale for only $46.4M - $22.2M = $24.2M
5. So, the Business P/E is 24.2M / 7.2M = 3.4, which I've simply rounded up to 3.5. Compared to its listed competitors, I believe EUROSP is trading at a very undemanding multiple.
6. Superficially, if one doesn't put any value on its $22.2M cash hoard, then, you could say the P/E is 46.4 / 7.2 = 6.4 times.
7. Superficially, if you prefer to use outdated 2006 Financial Year earnings, then, the P/E is 46.4 / 5.8 = 8 times. But to me, this is not the right way to value a business - and is potentially dangerous when applied to other stocks - since it gives no credit to recent earnings growth (EUROSP Financial Year ends 31 May), as well as not giving credit to EUROSP's strong cashflow and its large cash hoard.
8. If you think such a business, in the current environment, deserves a P/E multiple of 7, then, the Target Price could be 18.1 sen x 7 + 56 sen = $1.83, say between $1.50 to $2. Whether EUROSP actually reaches this price or not will depend to a large extent on the market.
For more details, you may refer to my previous writing on EUROSP here - http://fusioninvestor.blogspot.com/2007/04/eurosp-business-proposition.html
Disclaimer: As usual, use your own judgement and invest (buy, hold, sell) at your own risks.