Geoff/Jon,
Let me address the other side of the coin on PSFT. While the current PE of about 120 is certainly high relative to other stocks, I believe the price is fair if you look beyond the numbers on the income statement. Here's my reasoning.
I subscribe to Peter Lynch's philosophy of "invest in what you know." I am a business systems consultant specializing in off-the-shelf financial software, primarily Oracle's applications. Based on my experience (3 years worth) with clients in the process of evaluating HR/financial/manufacturing packages from various vendors, I've never run across a client who was not impressed with PeopleSoft's applications. In fact, I've seen several examples of PeopleSoft outgunning it's rivals in product demonstrations to the point where other vendors have come back with price concessions in their final bids in response to Peoplesoft's functional advantages.
Based on these observations, I bought a nice chunk of PSFT in April 1994 and I can now buy several new cars with the proceeds. (In Lynch's terminology, it's now a 15-bagger for me.) At that time, all the negatives that you are now concentrating on were present (i.e., high PE, "shaky" market, volatile share price, etc.) But one underlying fact outweighs them all -- PSFT is better at business applications development than either of it's two principal competitors, Oracle and SAP. (And this is coming from a guy who makes his living based on sales of Oracle's applications. BTW, I own no ORCL shares.) I have seen nothing yet that leads me to believe otherwise.
If the 120 PE concerns you, then by all means invest your money elsewhere. There are plenty of 10-15 PE stocks that will let you sleep better at night. But I would not recommend that you bet on a significant drop in PSFT along the lines of USRX or IOMG. Lots of people have made the same mistake over the last 3 years and have lived to regret it.
Tom |
