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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: Uncle Frank who started this subject7/19/2001 2:44:38 AM
From: Mike Buckley  Read Replies (4) of 54805
 
For the people who think Siebel's stock price is a bargain, I'd like to remind everyone of a comment I made to Malcolm a couple of months ago. I mentioned that late last year Siebel's Fool ratio was north of 5.0. I also wrote that if a bubble of that magnitude occured again I would sell at least some of the stock to fund my living expenses. The context was that such a huge, relative valuation would be produced by a gargantuant increase in the price of the stock.

Boys and girls, I have a surprise for you. :) And it may not be a pleasant one. :(

Using today's stock price of $37.64 and a report about the conference call (I won't listen to it until this weekend) that management is comfortable with current FY01 and FY02 estimates, Siebel's Fool ratio is an unusually lofty 4.5.

If you're not used to running a Fool ratio, simply be aware that management is currently comfortable with estimating 12% average annual growth in earnings over the next 18 months at a time that the stock has dropped to 59 times trailing EPS excluding one-time accounting events.

I've never tried to predict the price of a stock over such a short period as the next 18 months, but unless you believe that the company's fundamentals are going to be a lot better than 12% average annual growth during that period, you might want to think many times before concluding that today's "low" price is a steal just because it's 70% off its very recent high. That relative valuation was this high only once before that I can remember -- when the stock price was almost three times as high as it is today.

--Mike Buckley
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