Bad investing information/advice on the net contest Message Board

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Bad investing information/advice on the net contest

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

To: Edwarda who wrote (173)	11/17/1999 11:10:00 AM
From: Chuzzlewit	of 214

Edwarda, my critique is based on using book value as a basis for valuation, and I discussed those objections in excruciating detail in the following post: Message 11966754 I wholeheartedly agree that an astute investor ought to take expected earnings into account in determining the value of a company. However, the question is the reasonableness of the timeframe for those estimates. If two years is a lifetime for tech companies, then 5 years is an eternity. I think the approach of estimating earnings trajectory is best when market growth is well-defined and we are looking at one company taking market share from others because of a superior business model. Dell is a good case in point. As a nascent company commanding only a tiny fraction of the market, Dell was constrained only by its ability to outperform its rivals and market growth was a relatively minor constraint. It is inescapable that at some point the company will have grown large enough so that sales growth will be constrained by the growth of the market. If one does not assess the P/E to expected growth rate, it starts to get a bit tricky trying to figure out a reasonable valuation for a growth company, don't you think? I couldn't agree more, and that's exactly the reason I use normalized PEG ratios. But when you are investing in companies that are in the business of of generating entirely new markets (like biotech companies) this approach is an exercise in futility. In tech companies my experience is that accounting is seldom clean owing to the widespread (ab)use of employee stock, options, the rapid pace of acquisitions, channel stuffing, and back-end loading. Follow the cash! TTFN, CTC

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next