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Technology Stocks : HNC Software...wake up everybody!
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To: PFRice who wrote (8)2/28/1996 8:39:00 PM
From: Gary Walker   of 22
 
I've turned over a new leaf....

The PE arguements are stroon throughout the NSCP threads if you're interested in valuation theory.

The main point is that traditional valuation models like PE and Market value to sales really don't work for start-ups. PE's are an incorrect indicator especially for a start-up with little earnings.

Market valuation to projected sales (MVS) is a better indicator in my opinion. For example: MSFT's MVS is about 7 while INTC is 3 and GATE is .5. Companies in those industries are valued by investors based on future expectations. It's safe to say that the expectations for GATE are much lower than INTC and MSFT. A start-up in a similar field to GATE should get a lower valuation because of the risk.

NSCP is an interesting example with a MVS of 27 today it is still value 4 times higher on a relative basis to MSFT. BUT if NSCP doubles sales in the first quarter that valuation ratio drops to 13. A doubling again in the second quarter drops it to 6.5, and close to MSFT. A that point the question is have many times can they double the sales AND can they get the same margins as MSFT.

Not an exact science.....

I think a good way to value these new companies is to look a what other companies are willing to pay for the companies on a MVS ratio basis. PSInet bought a european ISP for 2.5 times sales while PSInet stock was selling for 20 times! You know the rest of that story.

Appreciate your comments in NSCP...you've helped me understand the potential of the internet.

Please!!! comment in Communcation section "Internet...data overload..." thread!!
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