Hi JDN: How does one quantify the "Social Capital" a company earns in the financial analysis? It appears SUNW may be reinvesting in their "Social Capital" with some of these new contracts (ie E-Bay) where it is perceived that they are giving away the store.
Also, it was pointed out by Bob Brinker that several of these technology companies (ie Intel) include investment income in their quarterly operating earnings. As a result, investors value this income stream at the same PE (or higher) as the on going operation. This results in an extra over valuation for the company. Any idea as to what SUNW's investment income is for the previous quarter and what SUNW's forward PE would be if this income stream is backed out?
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What Sun did right
By Ryan Tate (Upside.com)
(http://www.upside.com/Executive_Briefing/39497d450.html)
June 16, 2000
Get-rich tip: Social capital counts as much as the
economic kind. Witness the success of Sun (SUNW): before the Web exploded in the mid-1990s, Sun was an enterprise
market has-been eating Hewlett Packard's (HWP)
dust. But while the company was lacking in economic
capital, it had a vast store of the social kind, which is
created when an organization or person is plugged into
important networks of people. Sun acquired its social
capital, according to MIT online communities guru
Philip Greenspun, by selling loads of servers to universities on the cheap throughout the 1980s and by
granting great lease terms to venture capitalists in the
1990s. This strategy was smart on the one hand because programmers were coding the free software behind the Internet in university computer science departments -- on Sun hardware. That meant that essential Internet code ran without modification on Sun machines. And it was smart on the other hand because Sun was engaging small Valley firms when they couldn't get the time of day from other enterprise
players.
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As far a valuation, SUNW has a high valuation where (1) in one case "Social Capital" investments in the future may be understated and (2) investment income (from their equity VC investments) may actually over state the current value; AND as a result the "true" valuation is impacted by these other "non-operating" (financial) factors.
Then there are the "non-financal" factors too. One has to place a premium on management as they continue to deliver quarter after quarter of 20% or better growth.
In summary, I have concluded that using a straight financial valuation model provides a good start, but there are many other non-operating and non-financial factors that impact a stock's value too. TA is a road map from the rear view mirror and perhaps a short term trend can be obtained based on OBV, MA and supply & demand trends, BUT in all cases (from my experience) long term trends are missed. You make your big returns (ie capital gains) from these long term trends.
EKS |
