Dreman internet valuation study: The following was excerpted from an article entitled WHEN THE INTERNET BELL RINGS, WILL LIFEBOATS BE READY? By Pierre Belec
<<David Dreman, head of Jersey City, N.J.-based Dreman Value Management, which handles $7 billion of assets, said his study found that Internet stocks are simply an extraordinarily big bubble.
America Online, eBay, Yahoo!, Qwest Communications, Excite, Lycos, E+Trade, AmeriTrade, Amazon.com and Cisco Systems all went under the microscope in Dreman's analysis. But only Amazon.com and Cisco were judged to be close to reality.
Dreman said the difficulty in projecting the future of Internet companies is that many still do not have any earnings. The analysis got around that problem by relying on analysts' forecasts of what the companies could earn in their first year of profitability.
The analysis then projected a large 50 percent earnings growth for the companies in the first three years, followed by a 25 percent rise for the next five years, 20 percent for six years, 15 percent for seven years and a 7.5 percent income growth thereafter.
The results were mind boggling.
eBay, which has an incredible forward-looking price/earnings ratio of 8,600, was worth only $6 a share, compared with its current level of $187.
Yahoo! was given a theoretical value of $31 versus $189; America Online, $38 against $147; Qwest Communications $25 versus $92; Excite $54 compared with $152; Lycos $34 against $100; E+Trade Group $25 versus $104; AmeriTrade $36 versus the current level of $127.
Wall Street had reasonable expectations only for Amazon.com, which was calculated to be worth $103 versus its current level of $200, and Cisco, pegged at $118 versus $113.
''Any Internet companies would say that we're crazy and they'll earn much, much more, because, after all, this is a 'New World,''' Dreman said. ''But people have said the same thing about other speculative bubbles.'' >>
What knocked my socks loose about this is it appears to have Dreman supporting Henry Blodget's Wacky Amazon forecast...ore at least a lot closer to it than I would have imagined. |
