How high will Microsoft fly? Message Board

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Technology Stocks : How high will Microsoft fly?

MSFT 474.35

-0.9%

1:56 PM EST

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To: Dave who wrote (53759)	12/3/2000 8:55:15 PM
From: David Howe	of 74651

<< As you probably know, for a particular company, historical P/E is approximately equal to annual earnings growth, so a company with 10% annual growth can be expected to have a P/E of about 10 >> That's total bunk. That's a rule of thumb that is used frequently for valuing companies with high growth rates, but it has nothing to do with valuing MSFT. Sure, it has been argued that a company growing at 200% might be fairly valued with a PE of 200. That's a metric that has been used during this bull market, but it's not even remotely usable in valuing MSFT. Coca Cola (KO) has a PE of 80 and it has NO growth. Several years have passed since they've grown even a few %. Yet, it still has a PE of 80. It's a mature company with a steady reliable market. I'm not saying that MSFT should be valued like KO, but I am saying that your idea of 10% growth equating to a PE of 10 is not worth the time it took me to type this response. GE has a PE of 42 and it has growth of about 10%. GE is not one of the high flying tech stocks that got caught up in a high level of speculation. Maybe GE is setting up for a fall in this bear market we may be in, but I'll bet that the lowest PE GE ever ends up with is 20, even in the depth of a bear market. GE is too solid and diverse a company to go lower than that, even if their earnings growth slows to a halt, IMO. 10% growth does not equate to a PE of 10. Dave

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