Placing high PEs on huge companies such as CSCO or MSFT
is absurd . . .
Since this issue just won't die, I figured I'd add a little. First, Bernard no one "places" a high PE on the stock. It is a retrospective calculation based upon the market price of the stock, which is more of function of supply and demand than a PE calculation.
I didn't intend to start a discussion here on PE since this issue has been raised in recent months, if not weeks, regarding the lofting pricing of stocks listed on the Naz. IMHO, there are arguments on both sides that have merit, and such debate creates a market.
My initial comment was focused more on the "reevaluation" of pricing upon which the PE metric cannot be discounted. The premise of my comment was is IF one were to adopt the argument that certain stocks are overvalued based upon a PE measurement, that the larger stocks with real earnings, real growth, and a proven track record of growth and an ability to adapt to changing markets are going to merit a higher price (call it PE if you wish to measure value by those terms) than many of these newly formed, newly public companies with no such earnings, no such track record, and really nothing more than "a story" that many prone to euphoria have bought into.
You talk about PE, yet you refer to growth. The two are not the same, and one is not necessarily indicative of the other. The bottom line to my point is that the larger "blue-chip" hi-techs, whatever you want to call them, should command higher valuations than the "dot-coms" not because they cannot sustain a higher rate of growth, but that they are more likely to provide an investor with a more realistic (in terms of probability) earnings stream, and that should be rewarded in the market place relative to a newly-established, albeit torrid growth, dot-com company.
I think we all agree that many of these valuations had gotten way out of hand, and the market has now corrected. And to reiterate my point, IMHO, the blue-chip high techs, were not as overvalued as the dot-coms, not based upon PE metrics, but in terms of the playing out of supply & demand over a time period beyond one or two trading sessions, particularly during extremely volatile markets. |
