> What are the reasons?
> Jan 2000 : MSFT at 120, PE of 81
Reason: "Irrational exuberance". Greenspan's Federal Reserve created unprecedented mountains of money before Y2K, and it went straight into the equities market. MSFT, as a member of both big indices, went on a senseless moonshot rally.
> April - Sept 2000: MSFT at ~70, PE of 41.
Reason: "Flight from quantity". After the Fed stopped printing money, the equities came back to earth. MSFT dutifully followed. Now of course the stock is still overvalued. MSFT's operating revenue growth has gone negative, the company has been found guilty of illegal monopolization and WILL be punished significantly one way or another, and there are no compelling products in the pipeline (Try to find a consumer who cares a whit about .NET but who doesn't own MSFT stock. Try to find a software developer who would rather program to WinCE than to Palm OS, or to Windows Media than to QuickTime. Try to find a major ITV player who isn't hedging its WinCE bets with Liberate and OpenTV). Yet MSFT's P/E is nearly three times the stock market's historical average.
> How will this situation change?
It's already started to change. The price of MSFT has been artificially stable lately, as MSFT has been steadily buying back its stock from the big mutual funds, who are still dumping. But when this exchange is complete, and normal volatility returns, expect the stock to head toward the 30's. |
