THE TIMES 100 : THE BEST PERFORMING COMPANIES IN CALIFORNIA : VIEW FROM THE STREET : Popular Up-Starts : Measure of Market Value to Sales Gives Biotech Firms Edge

They are small and maybe years away from reaching their full potential, but exotic high-technology firms in the Golden State continue to be popular among investors.

A ranking of “Wall Street’s Favorites” among California stocks--measured by comparing a company’s value in the stock market to its total sales--is dominated by firms on the cutting edge of technology. The story was much the same in last year’s ranking.

Many of the firms are in biotechnology. Cetus Corp., ranked No. 6, has focused on products, such as Proleukin interleukin-2, which are aimed at attacking cancer and infectious diseases. Reflecting the volatility of the industry, though, Genentech sank to No. 19 from No. 2 on last year’s list--its anti-blood clot drug having fallen short of expectations.

Medical technology firms in general were also favorites. Alza Corp., ranked No. 4, sells products that allow the controlled release of drugs into the body over an extended period. One product, for example, is attached to the skin behind the ear and releases medicine through the skin and into the bloodstream.

New and fast-growing companies, like those in biotechnology, generally show up as big favorites when their stocks’ value is measured against sales. With sales expected to soar in the future, investors tend to bid up stock prices.

Unlike the more familiar price-earnings ratio, which measures price per share divided by earnings per share, the market value-sales ratio is determined by dividing a firm’s market value by annual sales or revenues. The ratio is considered more stable and perhaps more reliable because a company’s earnings can change dramatically because of one-time gains or losses. Small start-ups also tend to have an artificially high price-earnings ratio because their profits tend to be small or non-existent.

The market value-sales ratio is best suited “when looking at fast-growing companies,” said Kevin Colosimo, vice president of MZ Group, which compiled the information for The Times. “It is useful when examining companies that don’t have earnings yet.”

But some of the firms on the list do not fall into the high-growth category. No. 1 Tejon Ranch Co., involved mostly in ranching, owns 270,000 acres north of Los Angeles. The attraction here is not sales but the potential value of the land when it becomes developed for commercial or residential use. (Tejon Ranch is 50% owned by Times Mirror Co., publisher of The Times, and by affiliates of Times Mirror.)

Those companies that fare poorly when measured by the market value-sales ratio are those firms deemed to have relatively poor prospects for future growth. Some of these companies on the “Wall Street’s Forlorn” list include Gibraltar Financial Corp., ranked No. 1, which recently filed for bankruptcy protection.

Investors were apparently troubled by the reduction of a major government contract for Perceptronics of Woodland Hills. Ranked No. 15, the firm depends for most of its revenue on government research contracts for computer simulation and training.

Wall Street took a dim view of potential sales growth at Los Angeles-based Carter Hawley Hale Stores, ranked No. 11, according to retail analyst Sarah Stack at Bateman Eichler, Hill Richards, a Los Angeles brokerage firm.

Investors may also be turned off because Carter Hawley, owner of the Broadway department stores, has made itself a tough takeover target, in part because of its high level of debt. The owners of Carter Hawley, Stack said, have “basically insulated themselves against any takeover.”

WALL STREET’S FAVORITES

Companies with highest ratio of stock market value to sales.

4/3/89 1988 Price- mkt. value revenue to-sales Rank Company ($ millions) ($ millions) ratio 1 Tejon Ranch Co. 516.8 14.1 36.66 2 Magma Power Co. 367.7 20.6 17.86 3 California Energy Co. 177.5 12.5 14.18 4 Alza Corp. 835.6 74.0 11.29 5 Amgen Inc.*** 709.7 68.2 10.41 6 Cetus Corp. 363.4 45.4 8.01 7 Chiron Corp. 219.5 33.6 6.54 8 Octel Communications 308.4 48.0 6.43 9 Autodesk Inc. 737.0 117.3 6.28 10 Intl. Lease Finance 737.7 118.9 6.20 11 Digital Microwave Corp. 354.6 57.2 6.20 12 Pacific Agricultural* 69.8 12.3 5.69 13 Adobe Systems Inc. 457.3 83.5 5.48 14 Berry Petroleum 214.7 39.5 5.44 15 Cadence Design Systems 347.0 67.1 5.17 16 Diagnostic Products Corp. 237.7 47.0 5.06 17 California Biotechnology 67.1 13.5 4.98 18 McFarland Energy Inc. 60.4 12.8 4.72 19 Genentech Inc. 1,420.1 322.6 4.40 20 Franklin Resources Inc. 816.2 202.7 4.03 21 Vitalink Communications 146.6 37.4 3.92 22 Homestake Mining 1,353.1 345.6 3.92 23 Collagen Corp. 114.0 29.2 3.90 24 National Insurance Group 66.2 17.2 3.84 25 Acuson Corp. 641.3 168.5 3.80

*See exceptions, page 38.

***See exceptions, page 38 and company notes, page 29.

WALL STREET’S FORLORN

Companies with lowest ratio of stock market value to sales.

4/3/89 1988 mkt. value revenue Rank Company ($ millions) ($ millions) 1 Gibraltar Financial Corp.** 11.6 1,398.9 2 Olson Industries Inc. 1.8 68.8 3 Fincl. Corp., Santa Barbara 12.9 476.4 4 Transcon Inc. 11.9 322.0 5 Western Health Plans 6.2 127.7 6 Erly Industries* 17.6 336.1 7 TPA of America Inc.* 2.6 48.9 8 Commercial International 3.6 63.3 9 National Lumber & Supply* 9.9 154.6 10 Dest Corp. 2.0 29.6 11 Carter Hawley Hale** 192.5 2,617.1 12 Imperial Corp. of America 86.3 1,161.4 13 Wickes Cos.* 334.7 3,984.6 14 Ducommun Inc.* 6.2 71.6 15 Perceptronics Inc.* 3.7 41.5 16 Distributed Logic Corp. 4.7 51.2 17 SFE Technologies 3.3 36.2 18 Silvercrest Corp. 5.2 55.3 19 Homestead Financial Corp. 47.7 490.3 20 Chesapeake Industries Inc. 4.6 45.8 21 Zentec Corp. 1.8 17.7 22 Flextronics Inc. 21.8 194.5 23 United Educ. & Software* 9.9 87.8 24 Columbia S&L; 148.8 1,301.6 25 Sunrise Medical Inc. 16.1 140.3

Price- to-sales Rank ratio 1 0.01 2 0.03 3 0.03 4 0.04 5 0.05 6 0.05 7 0.05 8 0.06 9 0.06 10 0.07 11 0.07 12 0.07 13 0.08 14 0.09 15 0.09 16 0.09 17 0.09 18 0.09 19 0.10 20 0.10 21 0.10 22 0.11 23 0.11 24 0.11 25 0.11

*See exceptions, page 38.

**See company notes, page 29.