For reference I am clipping part of your post:
<So while it's relevant to argue the merits of the theory, or to argue that SAP does not fit the profile of a gorilla, asking why we're investing in a company whose projected earnings growth is less than its PE ratio is completely irrelevant to the discussion.
Moving off topic a bit, I don't understand why you place such weight on the PEG ratio to begin with. It's a nice handy rule of thumb for screening stocks but it's certainly not the ultimate valuation tool, especially given the notorious unreliability of analyst's estimates. If you're going to be dogmatic about things, it seems to me that you're better off sticking to methods which have some solid statistical research behind them such as O'Neill's CANSLIM (for which I suspect SAP would be a viable candidate), O'Higgins' Beating the Dow, or O'Shaughnessy's focus on low PE and low PSR stocks.>
The fact of the matter is that fundamental valuation is certainly alive and well. It is the misunderstaning of that valuation and the misapplication of that valuation that causes the problem. To begin with, earnings don't count, so we should simply drop that notion from the start. I would love to debate this topic (since I feel SAP is a phenomenal investment), but I feel there needs to be a better understanding of my viewpoint.
Please read "The Case Against Earnings" rcmfinancial.com
I think this article makes a very solid case in favor of so-called "gorilla" companies such as INTC, MSFT, CSCO, YHOO, AOL, and SAP using plain old-fashioned fundamental analysis. It also squarely and empirically makes a solid case against earnings. |
