Dronamraju Ravi Prakash

I got a question from a friend about juniper. Do I still like juniper and if so why? What's my take on high P/E stocks in general ?

• First off, I like juniper for a lot of reasons. This is a company that went through the downturn, re-organized itself and came back strong. Juniper deserves a lot of respect for the way the company bounced back. They figured out their key strengths and are #1 player in those spaces - including the acquisition of netscreen. Inherently, both those spaces are going to grow. Network security market is still nascent, and their high end router business will get a boost with the increased interest in the VOIP market in the next year. Vonage has more than 600K users and this is just the beginining. If you look at this space, you have to ask yourself a question, why do you have to pay a broadband fee and a telephone fee and a cable fee? Integration will play out, and juniper has a strong chance to supply the key infrastructure to the competitors (MCI?)
• High P/E stocks. The usual justification for high P/E is high growth. It's ok to pay a high Price to earnings multiple, if the company is growing fast. The PEG ratio is applied here. I subscribe to this view as well. What PEG ratio am I comfortable with? Using Yahoo! finance's juniper analyst estimate page, I see that while juniper has a trailing PE of 86, it's future (expected) p/e is 20 for the fiscal year 2006. For fiscal 05 we are looking at a P/E of 27. Given a 5 year expected earnings growth of 20%, we are looking at a PEG of 1 to 1.5 Looks like a good deal.
  

The caveat is that all the future stuff is estimate. To the extent that juniper earns 70 cents instead of 76 for 2005 and only 90c in 2006 instead of 1.05, all bets are off. So with all the tech stocks when people trade on future multiples, you have to be confident of the future. So far, Juniper has delivered the numbers while it hasn't blown them away. I'll keep watching Juniper and move out if they are not delivering on potential.