> But if it is estimated that NTAP will grow e.p.s. by 50%, then it's p/e should be 50%...
1. It isn't estimated to grow by 50%, I said "even if growth were 50%" meaning
I am choosing a low growth rate, that I don't think will occur, to show how
oversold we are currently.
2. PEG: PE to Growth rate ratio is something people use as buy/sell points. Simplistically,
if PE is below the growth rate (demonstrated or anticipated, it's up to you what you use as
a gauge), the stock is a BUY. If PE greater than growth rate, there is more "speculation"
in the target price.
NTAP and other growth stocks get traded at 2-3 times their growth rates. Even a large
company like EMC or CSCO gets this multiple at times, even though the likelihood of
them "blowing out" earnings at their size is lower. Traditionally, perceived stability is
factored into the valuation equation.
This is the rub: some people consider larger companies as "more stable" and give higher
PEs/PEGs to them than smaller "less stable" growth companies. Personally, I feel it is
sometimes more risky to give a higher PEG to a company like EMC or Cisco because
the likelihood of any extreme acceleration in their business is less likely as they grow
larger. It all has to do with your level of risk (or what you perceive as "risk"), your belief
in the technology, company, management and execution of the company.
I guess we'll see tomorrow what the future holds. I'll write up my thoughts more completely
and post them today and maybe you'll better see where I am coming from... |
