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Technology Stocks : TLAB info?
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To: Bob Martin who wrote (2813)7/29/1998 1:44:00 PM
From: Bill Day  Read Replies (1) of 7342
 
More on the PEG subject. You have to remember the market's fondness for consistency. If you feel eps growth will consistent, paying up for a high pe growth stock works out, ie CSCO. For instance, buying a stock with a 40% growth rate and a PE of 50 would still make you 30% per year over three years, even if the PE falls to 40 by then. On the other hand paying above the growth rate for slower growers seems risky mathematically. For example 20 x eps for a 16% grower would leave you with 7.7% annually over three years if the PE fell to 16. This scenario reminds me more of the dow stocks and big drug stocks. Unfortunately any high PE scenario leaves us with a longer way to fall, if we encounter unexpected problems. This is just something I've thought about while kicking myself for not buying MSFT, CSCO, and TLAB, years ago when they were "overpriced".

Bil Day
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