A Closer Look at Respironics

Many years ago, when I got my first job in finance, I worked for a sleazy brokerage firm in Boston. This place was truly rock bottom. I was just out of school and it was the only job I could get. This firm made the Boiler Room look like Goldman Sachs.
All day long, I cold called people in and around Boston. I guess with the advent of cell phones, cold calling has gone away. But that’s all I had to go on. I didn’t even have my own desk. Several of us where bunched around a table loaded with phones, and we had stacks of Boston white pages. Even thinking about it is giving me chills.
The place was more like a frat house than a place of business. I finally had enough so I applied for a job in the research department. The head of the department told me to write a report on Respironics (RESP). So I rolled up my sleeves and got to work. I collected everything on the company I could find. I read up on sleep apnea. I read all of the company’s SEC filings. I read other companies reports. I called experts. For several days, I did nothing but eat and sleep Respironics.
When I finally wrote my report, I concluded that Resprionics’ stock was fairly valued. That was my big mistake. Well, I was right—the stock was fairly valued. But I soon learned that it was research director’s absolute favoritest stock in the whole wide world. As you can imagine, he hated my report and I didn’t get the job. So much for open-minded Wall Street research.
Ever since then, Respironics has had a special place in my heart. After I wrote my report, the stock flatlined for several months. Just as I thought, it was fairly valued. But in the long run, the research director was right, it’s been a very good stock.
For the past year, however, Respironics hasn’t done much. Here’s a look at the stock’s performance:

The yellow line (right scale) is the company’s earnings-per-share. The two scales are aligned 25 to 1, so when the lines cross, the P/E ratio is 25.

Posted by Eddy Elfenbein on December 6th, 2006 at 11:55 am

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