hi Bruce,
Do you think that PSR alone is a valuable metric to compare a category leader which is still in control of the desktop OS TALC (MSFT) in 2001 to a company in the 1930's?
it seems to me that you are barking up the wrong tree. instead of looking for the MSFT of the 1930s to justify the valuations of all US large-growth stocks today, why don't you look at the aggregate PSR of the market now vs. then. sure, MSFT is exceptional, but despite the exceptionalness of MSFT, the Nasdaq as a whole has negative earnings.
Unfortunately, Micron is not the type of company we would consider to have 'value' using gaming criteria.
the idea behind mentioning MU was not to suggest it is a gorilla stock, but to offer one example of how supposed "trough" valuations of a cyclical IT co have changed between 1990 and today. as more large growth IT companies become recognized as the cyclicals that they are, it becomes increasingly relevant to see what long-recognized cyclicals have been valued at. the PSR is an important ratio for this purpose (as you can't give a PE to negative earnings), so the fact that MU has a PSR close to 9 times what it did in 1990 seems far from irrelevant (even though MU is not a gorilla-type stock).
f a category leader survives the contraction portion of the economic cycle while some of the smaller fodder of competitors go belly up, the category leader is in a nice position coming out of the contraction
this is where it's important to distinguish between "good business" and "good investment". all else being equal, one prefers a good business. but usually a good business is priced as such (expensively), reflecting a lower cost of capital in the form of lower expected returns. in contrast, a business with "troubles" has a higher cost of capital which is typically reflected in higher expected returns. this difference is key to understanding why value stocks have historically outperformed growth stocks.
it's not that they're better businesses--often, it's the opposite--but rather, even a poor business can possibly provide a good return at the right price, while even a good business can possibly provide a bad return at the wrong price.
neglect of this (IMHO) timeless truth has cost investors a pretty penny in many a pretty company.
One has to like the prospects of some of the world's largest technology companies that have zero or very small debt going forward
as above, i would say this "prospect-likeability" is already priced into the stocks (and then some).
i'll address the rest of your comments later--gotta run now. |
