disu....i'll attempt to be concise...
if you were to purchase a business in the "real world", you would not set a value based on future growth. only tangibles are past and present financials which give an indication of the financial health and existing growth pattern. so why should an investor pay an excessive premium to the present earnings, note i use the word "excessive" which is in relation to a pe much higher then sector peers.
this philosophy is what spurred the rise of less then profitable companies, that used share price in lieu of traditional debt financing to grow and acquire. but it came at a cost to the shareholders who believed in the "new metrics" that attempted to justify why an excess premium should be paid for an equity position or share.
as far as techno gadgets and quality of life, perhaps as a convenience in the developed world, but not a necessity for the major populace.
when momentum and positive perception are excessive, the excess is normally reversed, but in such a fashion as to create an equal excess to the contrary....
this is a creature of the current equity markets, with high hopes and equally deep fears....add to the psychology extreme liquidity and you have a cycle which is based in extremes and volatility. it's the nature of the new beast....
when equity markets normalize to the reality of the true economy, companies without cash on their balance sheets, that operate at a loss, tend not to survive....
brcm is a fine company, it will survive and prosper, but the market is attempting to value more in line with a tangible reality that the pundits and investors failed to consider...
look at some other highly valued companies with less credibility and earnings then brcm.......rimm comes to mind, a company that deserves to be shorted based on fundamentals and an 800+ pe...
good luck, hope you feel better...
ed a. |
