Robert here are my few cents:
Technology and other high growth areas cannot be valued by current
P/E ratios. It is driven more by a future expectation of growth.
Basically, most actively traded stocks have are future valuated. This
means that todays price is not really what the company is worth today
but maybe what it is worth 6months down the line.
Secondly, and probably more importantly, is the 'perception' in
the minds of people (sometimes known as analysts) about future growth prospects. The more number of analysts who follow the stock, and the
more number of them who have a positive outlook, the higher the stock
valuation. This is why we have some exceptional companies which
are totally undervalued - primarily because it has not caught wall streets 'eye'. And some stocks with relatively moderate growth
which appear to be overvalued.
When we talk about a company with a 100% growth rate year to year, we have to exponentiate the future valuation because the growth is also exponential.
$1 this year, $2 next year, $4 the year after etc..
Only long term investors make money. Short term traders
make a penny here, loose a penny there and rarely barely break-even.
This however does not mean one should not sell- If it has reached a
certain limit (this varies from person to person and individual
gratification thresholds), the gain should be realized. The same applies for loss realization. Throwing in the tax element makes it
all the more complicated!
If you are confident that the growth potential is strong for the stock, hold on to it. I think looking at a 3 year horizon for Remedy,
given the industry's growth potential, and Remedy's positioning in the industry, $70 is comparatively cheap. After 3 years you could re-evaluate your position and see if you should sell or hold on.
End of Sermon ! |
