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Stock Analyst Update

Be Wary of Macrovision's Lofty Valuation

At a P/E of 188, Macrovision is just too pricey.

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What Happened?
Macrovision (MVSN) reported Monday that third-quarter revenues increased 48% to $20.4 million. The revenue increase was boosted by the completion of its GLOBEtrotter Software acquisition in August 2000. Pro forma net income, which adjusts for the cost of the acquisition, deferred stock compensation, and research-and-development costs, was 90% higher at $8.9 million. However, on a reported basis, net income was up a much more modest 12% to $4.8 million. The company ended the third quarter with a healthy cash balance of $145 million.

What It Means for Investors
We think that despite Macrovision's healthy fundamentals, it's hard to get around the fact that the company's shares are very expensive as measured by numerous valuation metrics. Even after declining by about 40% so far this year, the stock trades at a trailing P/E of 188, a price-to-sales multiple of 63, and a price-to-cash flow multiple of 147. It is extremely difficult to justify a P/E almost four times greater than the company’s revenue growth rate.

Richard Wilson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.