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Technology Stocks : BEA Systems (BEAS) - Undiscovered Growth Stock
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To: Zelix who wrote (967)12/14/1999 12:47:00 PM
From: Nadine Carroll  Read Replies (1) of 2477
 
Zelix

I like BEA too, as a company. What I was trying to say is that I still think that its stock is overvalued, even if BEA succeeds as a company.

Back in the old days of this bull market (say two years ago), the stock price was still regarded as having some relation to a company's expected earnings.

My thinking (& it's not rocket science) is that BEA is estimated to earn $0.38 in FY 2000 and $0.64 in FY 2001. Since I like the company, I'll take these estimates as gospel. So, if I take FY 2000 earnings and give the company a PEG ratio of 1, i.e. give it a P/E ratio that matches its expected growth rate, that means a P/E of 70 (not usually considered ungenerous!) and a target price of: 27.

If I think that 70% growth will continue for two years and use the FY 2001 estimate for the P/E, that gives a target price of: 44.

Of course this market, which seems to regard growth as priceless, has long since blown by these targets.

But if the market ever returns to valuing stocks based on earnings instead of hype, the stock may fall sharply even if the company continues to do well.

These cries of "Oracle has $100B market cap, why shouldn't we?" are meaningless. Oracle has grown as an institution over the last 20 years, and gone through some very dicey periods in that time. It is far from certain that BEA can become the middleware Oracle. Even it does, I still think the stock is ahead of itself.
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