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Technology Stocks : Wind River going up, up, up!
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To: Allen Benn who wrote (868)4/21/1997 5:11:00 PM
From: Don Dodge   of 10309
 
Even at todays prices WIND is selling at 50 X earnings, and 9 X sales. Those are pretty rich valuations by historical stock market standards. WIND is down 35% from January 1st and still commands these multiples. Other software and networking stocks that I follow are down 40% to 60%, so WIND has not suffered as badly. I agree that WIND has a bright future. The question is how to "value" that future. Many mutual fund managers have a hard time justifying stocks with a P/E of 50 and 9 times sales. Especially when they can buy Intel and double their money in a year like 1996.

I think what we are seeing is a "devaluation" of software and networking stocks much like the devaluation of the Mexican Peso. Every stock gets hurt in a devaluation regardless of performance. Stocks that are selling at 80 times earnings and 12-15 times sales can NOT sustain those multiples indefinitely. We would like to see a gradual transition from high multiples, and watch the stock gradually grow into its market valuation. But, sometimes it happens in one fell swoop, like a currency devaluation. In times like these large money managers re-evaluate their risk/reward equations and many times they flock to the "safe" tech stocks like Intel, Microsoft, Cisco, and others.

Investors shouldn't get mad about it or distress and consider selling. They should take ADVANTAGE of the situation and BUY.

I saw a response from another person saying that it will take 9 years to break even at these prices. I took that to mean 9 years of earnings. If you add up the 9 years of earnings it comes out to around $20, todays stock price. I saw the book value column but ignored it since it is irrelevant to software stocks.

Don
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