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Technology Stocks : Y2K (Year 2000) Stocks: An Investment Discussion
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To: Mondoman who wrote (1427)10/28/1996 2:04:00 PM
From: Robert Lawkins   of 13949
 
I think you are missing one important point in your analysis of this "industry" and and its prospects. Even if these companies reap the benefits of this major problem, the way they need to be analyzed is a special one, not the way a typical equity is measured in terms of earnings growth and price/earnings multiples but rather as a fixed income investment and using discounted cash-flow analysis.

Their prospects for earnings will run out shortly after the passing of Jan 1, 2000. This is especially true if the problem is as catastrophic as has been written about in this forum (if the problem is not fixed in a timely fashion--the companies will be out of business).

This question was asked of many of the companies CEO's on CNBC and few had any concrete plans for continuing earnings growth other than the idea that those companies they work for will want to continue to use them for additional "solutions".

Traditional equity analysis with price/earnings multiples assume a perpetuity with a growth factor. Fixed-income analysis looks to discount cash flows. If DDIM is expected to earn $1.00 in '97 (Phil Lee's numbers) and assuming 200% earnings growth for '98, '99, '00, and '01 discounted at a conservative 0% gives a present value of $31. After 2001 there won't be a market to fix problem that occurred a year earlier. So what are these companies going to do after this windfall? What will their markets be and what will their growth prospects be?

Something to think about.

Mondoman--thank you for some common sense.
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