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Technology Stocks : PEGA - Pegasystems
PEGA 58.95-1.0%Nov 6 3:59 PM EST
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To: Bill Harmond who wrote (166)9/23/1997 8:51:00 PM
From: Clam Clam   of 504
 
William, I saw some of PEGA and believe its a good company with an excellent product but I just don't see the leverage in the numbers. A friend in the breakout session told me they have 27 sales reps going to 40 which, after nine months, are only expected to generate $40k/month to hit quota. $500k annual quota is peanuts. The relationships with First Data and others will have to carry them. I would argue the company deserves a P/E in excess of its growth rate given the lower likelihood of an earnings miss but the long-term opportunity of this company remains limited to the financial services vertical market which Montgomery estimates at $600mm right now. I would get interested in PEGA only if it sold at a good discount to others in the group. At $32, that is 43x earnings (Montgomery is at $.75 for '98). That's too high for a story that lacks big upside, IMHO. I would get interested at 30x (assuming they beat earnings and the estimate eventually moves to $.85), that is $25.

I understand the accounting (PEGA doesn't sell perpetual licenses, they sell 5-year leases) but I don't understand why they donn't just do what every other software company does, book the revenue when the customer is billed for the software (receivable becomes current).
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