The market is completely misunderstanding the data. The annualized
earnings rate based on the last quarter (ending December 2007) is over
$.60. The forecast for annual revenue growth is 28%. And also
extremely importantly, the forecast increase of cost is 20%, below
28% . Now, if you understand math, it is significant that the
increasing rate of cost is lower than the revenue growth rate. For
example, for any company, if the cost increases at the same rate as
the total revenue, the earnings will also grow at the same rate. This
is pure math. In the case Cerogon Networks, for example, the earnings
will grow at annual rate of 28% even if the cost goes at 28%, the same
rate as the revenue growth. If the increase of cost turns out true to
be close to the forecast lower 20%, rather than 28%, you will actually
see the earnings growing much faster than 28%. The math here is what
bit more complicated, and the actual number depends on the current
profit rate. The calculation would go like this:

Earnings growth rate = (revenue growth rate x revenue - cost growth
rate x cost)/earnings

= revenue growth rate + (revenue growth rate - cost growth rate) x
cost/earnings

You can see there is an additional contribution to the earnings growth
rate on top of the revenue growth rate. The additional contribution is
proportional to the difference between revenue growth rate and cost
growth rate. Counterintuitively, the lower the current cost/earnings
ratio (a term inversely related to profit rate), the higher the
additional great contribution to the earnings.

If you plug in the current members of CRNT, which has:

revenue growth rate = 1.28 (28% increase);
(revenue growth rate - cost growth rate) = 1.28 -1.2 = 0.08;
and cost/earnings ratio = roughly 10 (equivalent to a profit rate
around 8%).

You would have a shocking 2.08 earnings growth rate, which is about
100% growth. Of course, that's assuming that the company's forecast is
reliable. The bottom line is that, if the revenue growth rate is close
to 28%, and if the cost does not also increase faster than 28%, the
earnings will grow at least 28%. But if the growth rate of cost is
anywhere lower than the forecast revenue growth, earnings growth will
be significantly greater than 28%.

Now back to the current price of the stock. With annualized earnings
based on the last quarter reaching $.60, we are looking at a PE ratio
of 14 at the present price. That's insane, unless you believe the
company's earning is going to grow at a rate of about mere 10%
annually. My calculations above show that the company is actually
forecasting, implicitly, an earnings growth ratio of 100% annually.
Let's cut that in half to 50%, just to be conservative. Now we're
looking at a fair price of this stock at $18 if you believe a P/E of
30 is reasonable for a company whose earnings growth at 50% annually,
or much higher than $18 if you use the conventional rule of thumb of
pegging P/E roughly at the credible annual growth rate.

The market is insane in terms of its emotion, and stupid in terms of
its intelligence.

nobo..Good analysis, but you are missing one big point that there are
several indirect expences that even the company is not aware of and
those come into play just before the earning as they make a big chunk
of the cost. Besides, honestly there are some costs, you never know
when those will pop up. I still reckon, atleast 30% growth and may be
higher if the new clients are created. But for now, I believe there is
a huge upside to this stock that people are completely missing...They
dump on market reaction and i don't completely blame them...but for a
stock of this capability and such good running growth rate, even a PE
of 40 is acceptable. That will put this price above $20. But the
market reaction is one thing that is not easy to decipher and
therefore i belive in a very near term, this is going to go above $10
and then $13. Once this crosses $13, it is going great guns...

I apologize for the typos in the previous post. I did it in an extreme
hurry yesterday.  I wish the posts here could be edited or deleted,
but obviously they cannot be.  The following is the corrected post.
This corrects typos and makes a few amendments on the description, and
is meant to completely replace the previous one.

The market is completely misunderstanding the data. The annualized
earnings rate based on the last quarter (ending December 2007) is
nearly $.60.  The forecast for annual revenue growth is 28%.  And also
importantly, the company forecasts a cost increase rate of 20%, below
the forecast revenue growth rate of 28%. It is mathematically
significant that the increasing rate of cost is lower than the revenue
growth rate, because this translates to an earnings growth rate
significantly higher than revenue growth rate. For any company, if the
cost increases at the same rate as the total revenue, the earnings
will also grow at the same rate. If the cost increases slower than the
revenue, earnings will grow faster than the revenue. This is pure
math.

In the case of Ceragon Networks, for example, the earnings will grow
at annual rate of 28% even if the cost grows at 28%, the same rate as
the revenue growth. If the increase of cost turns out to be close to
the lower 20% forecasted by the company, you will actually see the
earnings growing much faster than the revenue growth rate (forecast
28%). The math here is a bit more complicated, and the actual numbers
also depend on the current profit rate. The calculation would go like
this:

Earnings growth rate = (revenue growth rate x revenue - cost growth
rate x cost)/earnings

= revenue growth rate + (revenue growth rate - cost growth rate) x
cost/earnings

You can see there is an extra contribution to the earnings growth rate
on top of the revenue growth rate. The extra contribution is
proportional to the difference between revenue growth rate and cost
growth rate. Of course, this term would become a minus if the cost
growth rate is greater than the revenue growth rate.  So it works both
ways.

Also significant in the above formula is the factor "cost/earnings".
The formula shows that, a growth rate difference (revenue growth rate
- cost growth rate) translates to an extra earnings growth rate with a
multiplication factor of "cost/earnings".  The higher the current cost/
earnings ratio (a term inversely related to profit margin) is, the
greater the extra contribution to the earnings growth rate.  This may
strike you as counterintuitive, but it really should not.  It
basically means that it is easier for a company that has a low profit
margin to grow its earnings at a faster rate.

Now, let's plug in the current members of CRNT:

revenue growth rate = 1.28 (28% increase);
cost growth rate = 1.20 (20% increase);
(revenue growth rate - cost growth rate) = 1.28 -1.2 = 0.08; and
cost/earnings ratio = roughly 10 (equivalent to a present estimated
profit rate around 8%).

You would have a shocking 2.08 earnings multiple, which is a 108%
growth. Actually, this is very much what happened in 2007, in which
the revenue grew at 49%, but earnings grew well over 100%. Of course,
the above numbers for 2008 forecast can only be as true as the assumed
growth rates based on the company forecasts.

The bottom line is that, if the revenue growth rate is close to 28%,
and if the cost increases slower than 28%, the earnings will grow
faster than 28%. For each percentage point the cost growth rate is
below the revenue growth rate, the earnings growth rate will receive
an additional 10 (not 1) percentage points contribution. For example,
if revenue grows at 30%, and cost grows 5% slower than that (that is,
25%), the earnings will grow at 30% + 10x 5% = 80%.

Now back to the current price of the stock. With annualized earnings
based on the last quarter reaching $.60, we are looking at a PE ratio
of 14 at the present price. That's insane, unless you believe the
company's earning growth rate is going to be no higher than 10%
annually. The calculations above show that the company is actually
forecasting, implicitly, an earnings growth ratio of 100% annually.
But let's be conservative and cut that in half to 50%.  We would be
looking at a fair price of this stock at $18 if you believe a P/E of
30 is reasonable for a company whose earnings grows 50% annually; or
much higher than $18 if you use the conventional rule of thumb of
pegging P/E roughly at the credible annual growth rate.

The market is insane in terms of its emotion, and stupid in terms of
its intelligence.

Thanks for the feedback.  Your comments make perfect sense.  I did
consider the unexpected items when I cut the calculated earnings
growth rate by half, from 100% to 50%, in my final analysis (after the
theoretical to collections).  The 100% earnings growth may sound
outlandish, but one should remember that the company grows earnings
more than 100% last year.  I think most critical thing to remember is
that this company still has a quite low profit margin, not because it
has a stagnant low profit margin like many other companies, but
because it has just recently turned profitable.  As showing in my
analysis, a present low (but improving) profit margin can be the most
important factor in forecasting a high earnings growth rate.  I think
this stock is the greatest bargain on the market at the present time.