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Technology Stocks : How high will Microsoft fly?
MSFT 483.03+0.5%Dec 5 3:59 PM EST
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To: Reginald Middleton who wrote (8658)6/25/1998 3:58:00 PM
From: johnd  Read Replies (3) of 74651
 
Reginald, Ibexx:

The "E" part:

Take the latest earnings report (with balance sheet) of MSFT
from April 98 and April 97. You can see that the difference in
deferred revenues were about 1 Billion. In defence of you fairly
valued argument, let us assume that all of that 1 Billion would
have contributed to earnings before taxes if not deferred. MSFT
has a 35% tax rate, so about 650 Million would have been added to
the EPS bottom line. 650million out of 2.7 Billion (fully diluted)
is about 24c addition EPS.

So take the last 12 months reported EPS (before Web TV) charges)
of 1.68 and add the .24 to it. That gives me 1.92

So divide 105 by 1.92, I get 55.26 (Actual PE).

Note that these above is very optimistic because it assumed not
proportional expense taken out for COGS, SGA and R&D out of
the 1 Billion. So believe the real PE at this point if no revenues
were defered would be somewhere between 55.26 and 67.

Isn't that a bit too much for a company with revenues growth
of 18% - 25%.? Give some premium for market monopoly, good
management. May be I will give 45PE, (even that is higher
than Coke (whose market control, performance is more predictable)
1.92 * 45 gives me 86.4.

The other thing you have to consider is at these valuations,
Microsoft is not buying back it's own stock. I am sure they bought
a lot back in the low 80s a few days back. But they won't buy
back until we get to high 80s or low 90s again.

There is too much of excessive exuberance. In day few days the
Windows 98 intro hype will calm down and reality of possible
realistic growth rates would set in and the stock price would
pull back to low 90s.

johnd
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