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Technology Stocks : MICROSOFT

MSFT 517.81

-1.5%

Oct 31 9:30 AM EST

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To: David E. Henry who wrote (16)	7/21/1997 6:36:00 PM
From: Dan Guinan	of 65

Microsoft has publicly stated that growth will be slowing and that next quarter will be the first quarter in Microsoft's history with earnings that are sequentially lower than the previous quarter. This is not the typical financial PR from Microsoft. They are much more resolute than normal. If this is indeed true, and I happen to believe that it is, then we should expect Microsoft's fundamentals to start to normalize. What this means, in essence, is that Microsoft's P/E will slowly move down to the 20-30 range (or even lower). If Microsoft's fundamentals normalize, bringing Microsoft's P/E to a more reasonable level, say 30 (still a high number for a company of Microsoft's size), the stock price will be right around 72. SUMMARY: THE NORMALIZATION OF MICROSOFT'S FUNDAMENTALS, DUE TO SLOWING GROWTH, PROVIDES US WITH A TARGET PRICE FOR MSFT STOCK AT 72. I think it is insane for anyone to hold this tulip-bulb at these levels. Microsoft has made everyone here alot of money - but remember, don't fall in love with a stock. Slowing growth equals fundamental normalization. Always. -Dan

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