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.