Well, " I am off by two years " , it is hard to say !!!
If you look at the past history of Microsoft , each pre earning run up will increase the price by around $20. After we hit the record high of $95 in April of 1999, Microsoft was put on hold till Oct, and the price retreat to about $75 low till the Oct earning release which pushed the price to as high as $100 and then retreated by abot $5% to 10% which is about the normal trading pattern for Microsoft.
Due to the DOJ case, Microsoft did not show any pre earning run up for April and July( retreat back from $95 to $73 in April , gave back the $20 pre earning run up of April due to the DOJ case), so the DOJ case cost two pre earning run up,i,e April and July, which is $40.
In Oct , the pre runing pushed the price from $74 low to $100 high and retreat to $92 followed with the settlement rumor ( mediator assigned by the judge)run up from $92 low to $113 low , another $20 .
So, if there is a settlement between now and Jan of 2001, we should have another $20 run up due to the settlement.
From now till the earning release of Jan 2001, we have another 5 pre running up, i.e $20 * 5 = $100. The Win2000 release add another $20
+ the $20 run up due to the settlement, which is a total of $140 run up, or ($116 + $140) / 2 = $128 after split . If there is a spin off of MSN , another $10 after split will be added to the price , which is $148 after split by next Jan , or $300 pre split.
What is the PE then based on your calculation ? If you compare this price , i.e $300 pre split by next Jan , with Yahoo, and which had very little earning, and low entry barrier and lots of competition, I feel that I can sleep better at night by holding Microsoft. Yahoo is just a wish and hope by investors, while Microsoft is a stock with real earning and performance + technology with high entry barrier.
Yahoo can crash anytime in 2000 , someday when you wake up in the morning , while Microsoft does not have such risk , solid earning is proved)!!! |
