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Technology Stocks : Exodus Communications, Inc. (EXDS)
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To: The Other Analyst who wrote (1541)11/11/1999 10:56:00 AM
From: MulhollandDrive  Read Replies (1) of 3664
 
Hi OA,

I doubt that many investors leave out the valuation number crunching. As with all companies the valuation will at some point have to reflect real earnings and expansion. However, I have found that when dealing with a nascent market sector it is extremely difficult to assign an "accurate" price target. There is no doubt that this market places a "premium" on expanding market share. Putting a dollar figure on that premium is simply impossible, since it has to do with investor "sentiment".

so of course valuation matters, but I have learned from past experience that it's impossible to call the top. In essence when you "value" the company, isn't that what you're doing? Since the market is forward looking the best you can do is estimate what kind of earnings growth can be expected and then estimate what kind of premium the market is willing to pay for that growth. Two extremely difficult variables to quantify.

I felt a little squeamish about buying QCOM at 190 because of valuation, too. As long as the money flow is going in to the stock and the market affirms the valuation, I'm hanging in....

I will say that EXDS has been fairly predictable in retracing after perceived highs, so it could be a good short for the extremely nimble. But I don't think you can expect any type of sustained down trend from a market leader in a burgeoning sector.

bp
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