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Yesterday Jabil Circuits (JBL) reported earnings, an upward surprise, and CEO TIm Main was very optimistic on the conference call. He sees "robust resumption of revenue growth." a nice 3R phrase, it rolls right off the tongue. He threw in a few "ramping" this and that, a wonderfully resonant R word also. He sees margin expansion. The stock was up as much as 17% on the earnings and outlook, to 16.97 earlier this morning.
Jabil was not exactly a high conviction pick when I bought it. After noting that I have had mixed success with looking for value based on a low price to sales ratio, I took a shot at JBL, citing the P/S ratio at .18 and a large insider buy by Tim Main. The thinking was, if they could get margins back up to their 5 year average, it would boost the stock to somewhere between 17 and 27. Now, with a quick profit of 45% in a matter of months, I am tempted to start selling.
Like most value investors, I like to complain that I always sell too early. Ken Fisher, whom I regard as a minor guru, wrote a book early in his career where he advocated buying industrials at a P/S of .40 and selling them at .80. Jabil is an electronics manufacturing service, but there is a lot of mechanical content in what they build, so I see an industrial. From 1998 through 2006, Jabil traded at a P/S of over .80 every year. A .80 P/S ratio, based on my estimate of 2008 sales, would yield a share price of 48, which seems ridiculous to me, based on realistic EPS projections. But 27, the high side of my original target range, seems within reach.
So, there is no need to sell the stock, just because it's going up.
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