Isn't the 4.95 SEBL PEG for the next 7 quarters also misleading if the poor business conditions of the past 6 months reverse? Isn't that the problem with modeling the future by assuming that present conditions will continue unchanged?
ps- wrote the above while you were writing your excellent response to substancep which answered my question.
pps-- "Goldman's Sherlund Says Software Will Recover First
By Eric Gillin
Staff Reporter
5/3/01 10:05 AM ET
Goldman Sachs' Rick Sherlund is casting his lot with the software industry. In a note to investors this morning, the analyst said this sector would recover first among the downtrodden of the tech world.
He sets software companies apart from hardware firms that can have a harder time working down excess inventories and feel a greater whallop when their customers slash technology budgets. "Software is not subject to the need to work down channel inventory levels and is sold more for current consumption, so business could potentially come back more quickly than in other sectors," he wrote, explaining the industry can sidestep twin terrors of low demand and high inventory.
Sherlund is optimistic because he thinks information technology budgets will get stronger as companies begin to believe the economy is not on the highway to recession. Indeed, last week's report of the gross domestic product showed the economy grew more quickly in the first quarter than many expected.
He recommended nine software stocks, all of which are on Goldman's U.S. recommended for purchase list: Amdocs (DOX:NYSE - news), BEA Systems (BEAS:Nasdaq - news), Check Point Software (CHKP:Nasdaq - news), Internet Security Systems (ISSX:Nasdaq - news), Mercury Interactive (MERQ:Nasdaq - news), Microsoft (MSFT:Nasdaq - news), PeopleSoft (PSFT:Nasdaq - news) Siebel Systems (SEBL:Nasdaq - news) and Veritas (VRTS:Nasdaq - news).
Investors have already started to turn bullish on the sector and recently sent these names much higher -- along with tech and the broader market. In the past five weeks, Microsoft jumped 28%, while Seibel climbed 58%. The recent rally helped erase heavy losses that hit the sector in February and early March.
Microsoft -- recently up 0.1% to $69.80 -- has a price to earnings ratio of 39.9. Its 52-week high is $82.87 and its low is $40.25. Siebel trades at 95.2 times earnings. It was recently off 2.8% to $46.58, well off its 52-week high of $119.87, but far off its $22.95 low.
"With stocks already up sharply off their bottoms, investors are understandably apprehensive about these higher valuations without supporting evidence of any improvement in fundamentals," Sherlund said. "If anecdotal evidence begins to build that IT budgets are indeed being spent this could be an encouraging benefit to investor sentiment."
According to information provided by the analyst, software stock valuations are about where they were before stocks soared in the three years through last spring. And although a lot of the stocks Sherlund recommended trade at more than two times their expected growth rate for 2001, he thinks evidence of improving IT spending could drive prices even higher.
If history is any indication, the summer is a slow period for software spending, something Sherlund says could dampen investor confidence in a near-term recovery. But once software can pull through the summer and early fall months, he expects to see a light at the end of the year. "The seasonally slow September quarter is, however, followed by the seasonally strong December quarter. And the fourth quarter could also benefit from budgets that were not spent in the first quarter," he wrote.
Sherlund's advice to investors -- wait until June. "The earnings preannouncement period upcoming in June may provide some pull back in tech stocks for those investors who may wish to build positions but fear having already missed the boat," he wrote.
thestreet.com
ppps- I think it may be that -experience is not the best school, though fools will learn in no other- (paraphrasing Ben Franklin) |
