>It appears to me that you are asking for a course in finance and DCF methodology,
>that I am not willing to give. The assumptions are right there in the anaylsis and on
>the spreadsheets. You say you don't understand them, but it seems to me that you
>are not trying hard enough (like when you could't find the P/E's because they were
>not labeled "PE" but multiple of earnigns, or you could have just overlooked them,
>but anyway you didn't see them and they wer right there).
Reg, I'm not asking for a course from you on anything, just an understandable explanation of your methodology. For example, you say the discount rate is the treasury rate, but WHICH treasury rate -- treasuries range from 3 months to 30 years. And does that mean that every time interest rates go up, Microsoft's stock should crash? (I know it will go down, but my question is, should it? Under your analysis, it seems it should because the discount rate has risen with interest rates.)
I could not find any price earnings multiples clearly labeled as such in your spread sheets. If I couldn't find them, how many other people who visit this site and click on your link do you think could not find them?
>It seems as if you misunderstand the relationship between market cap and earnings.
I understand perfectly what you are saying. But market cap is price per share times number of shares outstanding. If number of shares stays the same and price goes up, market cap will rise.
When earning rise market cap goes up, unless PE or number of shares outstanding goes down (as in through a stock buyback). If earnings stay the same and PE goes up, market cap rises because the stock is more expensive.
>And if you are
>strictly a P/E man, you have absolutely no business investing in NSCP. You are
>starting to show your lawyer side now.
I am not "strictly a PE man;" all I said was that for a mature growth company like Microsoft, I would not want to pay a PE that exceeds the growth rate.
BTW, what is my "lawyer side"?
>I
>have yet to hear a plausible argument from ANYONE (yes that's a challenge) that
>justifies NSCP's current valuation (approaching a [3]00 P/E).
My understanding is that, on a historical basis, Netscape's growth rate has exceeded its PE (albeit based on estimated, rather than actual trailing, earnings -- Bill Harmond can give us the figures). Naturally the ratio will compress at some point. But, and I said it in some of my earliest posts, that does not mean the price has to go down. It can just stay flat or not raise as fast. Of course, I have been proven wrong; the price has been all over the place.
Netscape's earnings are rising so fast, and its earnings history is so short, that a traditional "PE should not exceed earnings growth rate" analysis does not apply.
The problem is, you attack every argument with the counter-argument that Netscape is going to fail becaue of big, bad Microsoft. Then you say you have yet to see an argument that justiifes, etc. It is only natural that, since you believe Netscape is going to fail, you fail to see any argument that justiifes its current PE.
>One could relatively
>easily argue the 2 billion R&D investment (a industry record for internal investment
>without as much as a slight hit in cash flow or owner earnings),
Or, one could say they're throwing money and "masses of asses" at problems.
>coupled with
>encroachment on new, higher margin territory as well as the avenues opened by the
>internet
Or, one could say they are fighting on too many fronts, and are bound to disappoint on many.
>more than justifies MSFT's P/E (for close to 1/10th of NSCP's P/E (read
> PRICE) you are getting nearly 50 times the earnings for your money - and the
> absolute earnings potential for NSCP does not even eclipse that of MSFT. think
>about what you are paying for Gerry).
When I buy Netscape, I am paying for a significantly higher growth rate than I will get when I buy Microsoft.
On top of that, at 40 times earnings, Microsoft is trading at nearly twice its historical average PE (per Value Line). It's EXPENSIVE and RISKY because everyone loves it so much.
With Netscpae, not everyone loves it. A couple of months ago, the consensus on this thread and on Wall Street were so bearish you could hear the growls. Now things are a little more bullish, which means Netscape is a bit more risky. But there is nowhere near the love-fest there is with Microsoft.
>Windows 95 was the biggest, most cash
>laden event in the software industry's history.
Maybe so, but it still fell short of expectations which is one reason why MSFT went down from a high of 110 to the mid 80's last fall and winter. |
