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Technology Stocks : The New Qualcomm - a S&P500 company

QCOM 173.20

-3.3%

Nov 6 3:59 PM EST

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To: Keith Feral who wrote (1290)	9/5/1999 11:55:00 PM
From: Mike Buckley	Read Replies (3) of 13582

Keith, I'm a valuation junkie, so I've got to respond to a comment of yours that is the second one I've seen like it in the last month. At $160, the stock is trading at 40 times EPS for 2000. Balance this PE with the growth rate of 200% for the Sep quarter YOY comparisons. Let's use $0.30 for the 98 Sept quarter and $0.90 for the 99 Sep quarter. That gives you a PEG of .20 -pretty cheap in my book. It's not valid to compare 9/98 with 9/99 as a predictor of ongoing growth because the fundamentals dramatically changed in between those two dates. The Ericsson deal was done and the infrastructure business was sold. Moreover, by definition, a PEG compares the PE with the estimated growth going forward 1 to 5 years, depending on the assumptions being used. What you called a PEG is unlike any PEG I've ever seen because its growth component only addresses the growth between the upcoming quarter and the same one of a year earlier. That's mostly the past, not the estimated forward growth. Each of us has to decide what we think the earnings will be a couple years from now. If you do that and compare it with the trailing PE (excluding one-time charges and revenues and also using the pro-forma data that excludes the infrastructure losses), you'll get a far different and much more realistic PEG ratio than the one you described. In summary, my long-winded point is that by any traditional definition of a PEG ratio I've ever seen, your calculation is wrong to the point of being very misleading. I'm not being critical, just making some observations that hopefully will be a help when using the PEG ratio as an analytical tool. --Mike Buckley

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