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Technology Stocks : Rambus (RMBS) - Eagle or Penguin
RMBS 88.13+1.0%Nov 21 9:30 AM EST
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To: wily who wrote (32490)10/22/1999 2:39:00 AM
From: Double_Eagle  Read Replies (1) of 93625
 
Wily -

As Mohamed wrote, PE is not at all equal to ROE. Although you may argue that it should be, that is a totally seperate discussion re: valuation, but PE has not been anywhere near ROE for a long time (and I would argue that there is no necessary correlation between a backward looking metric - ROE - and a forward looking expectation - PE).

For a few benchmarks of PE:
INTC: 33
DELL: 63
LU: 64
CPQ: 28
CSCO: 112
MSFT: 61
Avg: 60

Yes, these #'s are skewed because of CSCO. And yes, these companies are currently in different competitive situations than RMBS. But I would argue not for long. Certainly not as RMBS becomes a Gorilla, or a King, as Unclewest has been arguing on that thread.

So, the $9 that RMBS earns per share by 2003 (Mohamed's $15 x .6 assuming a conservative 40% tax rate) at 60 PE = 540. Or, 9x30 PE = 270. Even this very conservative 270 on a multiple of 30 implies a present value (assuming a very high discount rate of 20%) of 130.

So, if you're comfortable with a 30 multiple (i think this is very conservative) and a 20% discount rate (extraordinarily high considering how far RMBS tech. has come), today's value is near 130, or double today's market cap.

sounds like a risk adjusted no-brainer to me.

- double eagle
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