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Technology Stocks : MSFT Internet Explorer vs. NSCP Navigator
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To: Mark Finger who wrote (3229)11/20/1996 11:41:00 AM
From: Reginald Middleton   of 24154
 
<Contrast this with Netscape's sales growth, which was 500% for the last quarter. >

NSCP's quarter by quarter growth hold's less weight when it encompasses a total of only four or five quarters. Though the growth is impressive it is short lived, and can command but so much of a practical premium. This is especially true when the growth has occured in a market that had very little competition. NSCP would deserve an additional premium if that market was still devoid of competition, but SIGNIFICANT competition has arisen and is currently "mobilizing" to cannabilize NSCP's potential revenue streams.

<A real difference between the two companies is their operating margins.>

To be absolutely fair, the same argument that works against NSCP in terms of growth experience works for them in this aspect. Though the company can be punished for low margins, they should not be penalized but soi much for the large internal investment is necessary for their phase of rapid development.

This argument you proffered is a good argument in favor of a decent premium for NSCP shares, but still comes no where near justifying their current valuation of 304 P/E.

<A second way to look at numbers is to look at the price/sales ratio. Microsoft has a ratio of about 11 and Netscape has a ratio of 18. Now when you compare growth rates of the two companies, Netscape no longer appears to be as overpriced. >

Again, you are comparing a growth rate that has encompassed but a few quarters, which lessens it's credibitily cosiderably. If one were to annualize the growth rate, there would not be enough data to accurately trend past the first year.
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