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Technology Stocks : 2000 Date-Change Problem: Scam, Hype, Hoax, Fraud
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To: Done, gone. who wrote (241)10/7/1997 3:00:00 PM
From: Sid Turtlman   of 1361
 
Michal: I just got off the phone with an old friend of mine who is a director of a company that is involved in computer services, and in the last year has had a big stock runup because it has been deemed a Y2K company. He says his company has seen some pickup in business due to Y2K, and expects that area to be a good profit generator in 1998 and 1999.

And he expects that there will be some additional business after 1/1/00. But not much! He says that all the important stuff will be done by 12/31/99 and while there will still be some minor things to be fixed, the profit margins on that kind of work will plummet because no vendor will be able to ask top dollar anymore.

So I ask again, how much should one pay for two or three years of earnings, followed by nothing? I say no more than one times the total of those earnings. So if you have a Y2K company that was earning $.25 per share without Y2K, and you think it will earn $1.00 in 1998 and $2.00 in 1999, back to $1.00 in 2000 and then back to $.25 in 2001 and beyond, I would say the stock is worth maybe 20 times $.25 plus one times the the one shot earnings ($.75+$1.75+$.75) or $8.25 in total. The problem with the field is that the valuations of most stocks are such that this hypothetical company is probably selling at $48.25

If you disagree with my methodology, please suggest another approach.
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