Roger's 1997 Short Picks Message Board

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Strategies & Market Trends : Roger's 1997 Short Picks

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To: CalculatedRisk who wrote (7594)	11/28/1997 11:15:00 AM
From: Roger A. Babb	Read Replies (1) of 9285

Bill and All: sometime in the next few days I will make a long post on my favorite criteria for evaluating software and Internet stocks. I will make a very quick summary now. My favorite measure of value is market cap per employee. Companies with a very high cap per employee are over valued and likely to fall (CTXS, SEBL, YHOO, ZITL). Companies with a low value are likely to go up (BROC). My reasons are: The main value of a software company is the expertise of its people, not existing products. The company must continually be doing R&D to hold on to it market share and grow. A high value means that its staff is over-valued, either the staff must grow (more expenses) or value will drop. A low value means that new products are under development. The highest values occur at the end of a product cycle when the profits are being reaped from the last product but little investment is being made toward new products (CTXS). The lowest values are just before major new product introduction (BROC).

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