siliconinvestor.com
Friday, September 24, 1999
Microsoft`s Ballmer sets the record straight
Market Analysis
Put your money where your mouth is! It is an old adage that says if you are going to claim to speak truthfully about something, you better be confident enough in your conviction to put your own money on it. Well, in the case of Microsoft President Steve Ballmer, he was willing to take a hit on his own chin to straighten out the markets. Whether he straightened out the markets is left up to debate, but there is no question that investors raised their heads and took notice.
Speaking before a technology conference, Ballmer said, "There`s such an overvaluation of tech stocks it`s absurd," including his own company. Well, if the president of the world`s largest corporation says that the value of his stock is too high, you can bet that investors were selling on the news. In reality, Ballmer was only trying to tame expectations on the Street, not only for his company but for all the unreasonable expectations bestowed on technology companies to deliver in accordance with their growth rates.
He isn`t the first Microsoft exec to fire a warning shot.
It is unreasonable to expect many of these multinational companies to double their earnings in a year, yet investors seem to justify doubling their stock price. Ballmer isn`t the first Microsoft exec to fire a warning shot across Wall Street. Two and half years ago, the CFO at Microsoft warned analysts that from a traditional standpoint, the company`s growth rate shouldn`t keep expanding as the earnings growth was contracting. At that time, Microsoft traded at 46 times earnings. Today it trades at 65 times trailing 12 months earnings per share. I guess Wall Street ignored the warning then; let`s see how it reacts to the comments made today.
The S&P 500 dropped below its 200-day moving average.
In addition to Ballmer`s speech, there might have been an even more significant event on Thursday. The S&P 500 dropped below its 200-day moving average. The bottom end of the range had been 1285, and seeing that we took it out in the last five minutes of trading, we could be in for an ugly opening Friday.
Understand that a 200-day moving average represents a long-term range not only for an index, but for stocks as well. When stocks break through their 200-day moving average, either on the high side or to the low side, as the S&P 500 did Thursday, technical analysts will often forecast a prolonged period in that direction. Let`s hope that we can climb back above that 1285 mark on the S&P in the morning. |
