How high will Microsoft fly? Message Board

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Technology Stocks : How high will Microsoft fly?

MSFT 478.47

-1.1%

3:59 PM EST

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To: PMS Witch who wrote (42220)	4/16/2000 12:19:00 PM
From: Gottfried	of 74651

PW, PE and the price of MSFT: Jacob wants to buy MSFT at a lower PE. Since the stock price is driven by demand, there must be less demand for the stock to lower the price - given that E does not change. Alternately, demand can stay the same, but E must increase faster. The second scenario is unlikely. Faster E increase will increase demand. So what events can lower demand for the stock? External events like Friday's panic are best, because they do not alter the underlying fundamental financial strength of the company - so the stock can rebound on the company's financial prospects after the panic subsides. Internal events like an earnings miss can drive demand and hence price down, leading to a lower PE if the forward E expectation does not change. If low enough, Jacob may buy. But maybe he'll pass because now his confidence in MSFT financial strength has been shaken. He's too shrewd to buy damaged goods. The reason for MSFT relatively high PE is high demand. More and more retail investors are being trained to buy only companies with superior financials [high E growth, no debt etc]. So it is not realistic to expect stocks that fit these criteria to be as cheap as those that don't. I think we have had at least two external events driving the stock down and would not expect another. And I certainly do not wish for an earnings miss to make MSFT 'cheaper'. If you want a stock with superior fundamentals you pay more. Now is a good time to buy MSFT. Gottfried

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