Nortel-undervalued?

Nortel ($2.95US) during many days over the past year was the most heavily traded stock  in the world.

The stock has come along way from Arlington Avenue in Westmount where our neighbour, Dick Harkness, was the President of Northern Electric and invited my parents and me to see a movie in their private theater; a great treat because in those days one had to be 14 to get in to regular movies and this observer had never seen a movie.

Looking at Nortel stock today the first impression is a good one because the debt equity ratio is so favourabe. But that is about the only good news.

The stock is selling at 20 to 25 times earnings with an estimated growth rate of only 9%; the book value is 85 to 90 cents so the price to book is over 3 times (we like it under 2); the cash flow is difficult to ascertain but the stock is likely selling at roughly 8 times cash flow and we prefer 5 times. There is no dividend. Our view remains that Nortel is overvalued.