Mr. Johnd,
I think your statements have some merit, but I think you are stuck in the 1950's in terms of valuation ideas. The idea of PE = Growth Rate is indeed a tool to be used, but in today's market, especially in technology issues, clearly this is not the case. And using a 71 TTM PE Ratio is also not a great measuring stick to use.
Certainly if Coca Cola is worth a PE of 54, using trailing, of course, and GE is worth 36, surely Microsoft is worth more than a PE of 50, without being ridiculous. If the market corrects, and KO, GE, and G, etc. move down with it, MSFT should contract. But 18% may be a bit low--I have seen much higher bottom line growth than that to be honest. MSFT may lower to around 25% growth, but 18% seems too low. Besides, KO grows at 18%, and GE less than that, yet they hold their valuations as well.
This also brings me to a point I have wanted to pose for the past month. Does anyone besides myself see MSFT as an internet play? I would think a browser has much more possibility in providing advertising and linking revenues than search engines, although the price of NSCP seems to tell me that I am in the major minority where this is concerned. I think MSFT has a much better shot at major-league future growth via Web TV, their cable broadcasting units which may make it rock when ATHM or cable-based ISP's become commonplace, along with new software. Can you name any other blue chips that have this potential? So I think the valuation is rich, but not absurd.
I think 88-90 would be very low, and I would load up the boat at that price. If it did drop back to the 95-100 range, for your "correction", that would still be fine--a 60% return from last June fits my PE = 60 model just fine.
Johnd, would I laugh if you told me you would sell at 113 and await 88-90 to reenter? No. I think you would have a great chance of getting back in at 95-100, though, at some point. But you could miss a run to 120-130. To be honest, 120-130 here in the next month would cause me to look for a quick trade to gain 10 points or so, but not because of the PE, but because of equilibrium.
Love to hear if anyone else sees this as an internet play. It is sure cheaper than YHOO, XCIT, DCLK, and other engines that barely make any money, if they do at all.
Regards,
G |
