RE: RE: RE: Huge disappointmentThat's exactly it. You've labelled management's guidance as "aggressive" assumptions, meaning you don't really believe them. As mentioned, I can't blame you for thinking that way, and certainly you are in good company with many other shareholders. However, the consequence is that this view makes a wide market in HEM's shares. If everyone felt that the company was going to achieve its guidance with a high degree of certainty, then I would find the current share price puzzling. Now lets say management meets its guidance. In that case many of the non-believers will be converted (for lack of a better expression) and you could see a rapid increase in the share price. But, this will need to be proved, as per my "show me" comments.
With respect to P/E, you are only looking 1 year out which shows the flaw in looking at forward P/E multiples as the only measure of value (trust me, the institutiaonal investors look at a broad range of valuation metrics, not just forward P/E). Consider for a moment that If a company was going to grow earings from
.05 in 2011, to
.06 in the next year and a penny each year therafter, then yes applying a multiple on next years earnings as a measure of value is valid (this would be a linear earnings trajectory on a stable company). However, and this is the beauty of operating leverage, a high growth company such as HEM has SIGNIFICANT operating leverage. Meaning that while
.05 or thereabouts is achievable next year, the following year could see a modest increase in revenue translate into
.15 cents (in other words a 15% increase in revenue means a 200% increase in EPS), and then potentially the next year to
.25.
The bottom line is in the two scenario's I outlined in the paragraph above, the 2011 P/E is identical, but you certainly wouldn't value each scenario the same. Operating leverage is key to value accreation in HEM (need to look at a 3yr+ earnings trajectory).