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It is interesting because I got into an argument with a friend about the price of EXDS. When it dropped from 148 to 119 over a three day period, I told him I would put in a buy order at $99, which is $2 less than when I last sold EXDS. He told me it would never get down to $99. For the time being, he may be right, but the point I was trying to make is that a stock that has appreciated six fold or so since the beginning of the year can easily drop 50% or more. Just look at doubleclick. Do you think that the people who bought at $120 after it fell from $175 had any idea it would drop to $75? Of course not, and DCLK is the affirmed leader in it's field, just as EXDS is the leader in it's area. I think people need to look back at some charts from last year, between July and September when stocks suffered that horrific correction. Some stocks, like Checkfree (the leader in electronic bill payment) fell 75% over that time period. It was a bloodbath. So, when a company is trading at 60 times sales I would say that even at 30 times sales or 20 times sales it may be overvalued- it really depends upon the investor sentiment at that time. Microsoft is selling at 27 times trailing sales and 66 times trailing earnings, but they are a special case. They have a virtual monopoly on the desktop operating system. Exodus will never be able to have a monopoly because they are not providing a unique service-they just happen to do it better than anyone else. Also, Microsoft has very high profit margins, which allows them to sell at a PE of 66 even though the PS ratio is 27. Most companies don't have 50% or so margins. So, in the case of Microsoft, the stock trades relative to earnings rather than sales. A PE of 66 is typical for a software stock. |
