Tom, I respect your opinion and agree that long-term PSFT *might* overtake ORCL in *certain* apps. Nevertheless, I must point out that your statement is interesting:
>>I subscribe to Peter Lynch's philosophy . . . <<
I have heard this sooo many times in the past and it is usually manipulated to suit certain means.
First, I am *sure* that as a salesmen, you know your games inside-and-out. In fact, you probably know more about the apps than most of the people at PSFT or ORCL. However, that is not the case with some 90% (IMHO) of the investors that have "bid the price up" on this puppy. A *perfect* comparison is Diana Corp. (DNA) which had its price bid up from some $12 to $114 a share this year. Now it is trading between 20-40 and going--you guessed it--southward. I suspect many people hear have heard that PSFT is a *great* co and simply do not understand the technology--and how easy it is to copy/mimic (we are bound to disagree here, but qui sera sera).
Second, Peter Lynch made one thing emphatic in his writings: NEVER INVEST IN A STOCK WITH A P/E GREATER THAN 10. I should say that you would be hard pressed to fit PSFT into a Peter Lynch model. Do some reading, as I have done, and you will find that there are people out there who not only say that PSFT is a scary investment, but have issued warnings to those with fiduciary investing responsiblities that it would be a breach of their duties to invest in PSFT due to the fundamentals of the stock. That means one thing = High Risk.
True, PSFT my edge higher, although only god knows why, but to say that PSFT is "fairly priced" and back it up with nothing more than you opionon that their products are better than ORCL (the second-largest software co. in the world) is to simplistic.
First, for a stock to be "fairly valued," you must look at the numbers and crunch them EPS's and P/E's so that, given projected future growth, the price bears some relation to the co.'s potential. Without going into more detail, it suffices to say that PSFT is more than fairly valued--it is overvalued. In fact, I sense that when you wrote:
>>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.<<
that you had a hard time keeping a straight face. I know I did.
This statement is (1) wrong, (2) inherently contradictory, and (3) misleading.
The current P/E of 124 is not grossly higher than stocks in the *same* industry--not just stocks in the market in general. That is important.
A stock can't be "fairly valued" if you "look beyond the numbers on the income statement."!! This kind of statement is *exactly* what I was talking about in DNA above.
This "gestalt" method of valuation--where you value the price of a security based on your opinion of the technology--is ludicrous and had certainly been a driving force in the market. Looking beyond the income statement has been popular--except when there is a correction--I admit. However, that is no way to invest (and Peter Lynch would agree I am sure!).
Look, I KNOW your gonna get steamed at this message: DON'T.
I mean NO harm--really. Do not buy, sell, hold, or short because of me. I am only expressing my STRONG OPINION and it happens to be in contra-point to yours. That is fine--it makes a market.
The most important thing to take away from this is the following:
1) Stocks are valuated based on their income statements. No other form of valuation is valid--else other stocks like INTC and MSFT should be trading at something like $500 a share now (seems "fairly valued" to me.)
2) New investment into PSFT is HIGHLY RISKY--even you seem to admit that with the grossly higher p/e.
3) Insiders are filing to sell--what does that say?
4) The stock has every bit of good news built into the price--what happens if they disappoint even a little bit?? Jack & Jill baby.
5) The revenues are decreasing and margins will naturally decrease over course of time.
6) It is a software company--remember Borland, Lotus, Corel, Actavision, Atari, Bruderbond, etc . . .these co's rise and fall faster than the red sea.
7) Great, you've made money--along with everyone else (employees included). Do you really expect that you are going to make the same return next year? Do you really think that this will keep going? How about a p/e of 200? Why not? Seems fair.
8) The market's got the jitters. Leave your investment in PSFT, but consider the fact that the market might take away some of those new gains--like many other stocks--as the week nears an end. Question is, how much can you bear to lose?
9) When the music stops, this stock will not look like IOMG, but don't be so sure that it will not look like USRX.
10) Peter Lynch would never--ever on earth--buy this stock.
GT--Admittedly Short PSFT.
p.s. Welcome to Silicon Investor!! I noticed you joined yesterday!
p.s.s. PLEASE, let's keep this civil and mature. I CAN bear to be disagreed with peacefully. |
