>>In a nutshell, I base it on past performance, projected earinings and potenial as well the competitive environment.
Reg, Trying to apply objective cash-flow analysis to these criteria is bound to be inaccurate. In the Internet software business, past performance is irrelevant, projected earnings have proven to be too conservative (the analyst "CYA" factor), and the competitive environment is unknowable.
Morgan Stanley, Netscape's lead underwriter and the firm closest to the company, put it best to me a year ago in gauging the investment potential of the shares. They said that the shares were most appropriate for institutional investors as a "call option" on the industry, implying that that the shares would be extremely volatile and appropriate only in well-diversified portfolios. They recommended accumulation over a long period. They warned that the price would be news-driven due to the thin float and the immaturity of the industry.
This is a speculator's stock. It defies valuation benchmarking. It has proven many, both shorts and longs, to be wrong for months at a time. With a valuation this high and growth this fast, the interest rate background (another unknowable) has played a huge role in it's performance.
None of us knows whether Netscape stock will be a huge winner. The important thing to me is to keep as clear a vision on the company's and industry's prospects (it's the purest play on the industry), stay informed, and stay close to the stock's technical performance and adjust weighting based on market conditions. So far the company has consistently out-performed the most optimistic projections, defied and competently adjusted to keen competition, and consistently executed its vision. Interest rates are benign for now.
At 100x next year, the shares are priced in line with other hyper-growth stocks over the past five years. The debate is whether Netscape deserves such status. That's where personal conviction and risk-taking enter the picture.
So far this "formula" has worked mighty fine for me.
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