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Technology Stocks : Stock Swap

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To: Patrick Slevin who wrote (9719)	11/21/1997 9:48:00 AM
From: Trader X	Read Replies (1) of 17305

On AMAT... "With Applied estimated to earn $2.13 per share in the next fiscal year, the company trades at roughly 18 times forward earnings. At 13 times forward earnings four days ago, the stock was certainly much more attractive. Although in the end 18 will probably be attractive as well, the risk of the investment four days ago was much lower than the risk currently because the valuation left more room for error. As the cash flows of these capital equipment vendors are very volatile, investors should never assume that a premium valuation will be maintained for long. Thus, with the industry forecast to grow in the 19% to 21% range over the next five years and Applied being a good chunk of that industry, expecting a 19 to 21 multiple is reasonable." --An Investment Opinion by Randy Befumo. -- I would add here that altho 19 to 21x is reasonable, fab pushbacks could diminish those expectations the way we've seen them dimished over the past month or so. It's good to keep in mind that the market values a stock not on reality, but perception. It doesn't matter at all if the company keeps growing at a 20% clip if sentiment causes a retreat in stock price and p/e multiple. Gaging the direction of sentiment is vastly more important than making the logically directed decision that--yes--AMAT will continue to grow. ©inagodadavida

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