<< Glad to see your long-what are you and others basing your investment decisions on? No one has answered my earlier post re: Earnings growth projections and P/E ratios.Lets remember share price must ultimately be based on profit growth. Lets see the fundamentals folks!!>>
Glen, I know where you're coming from, but I think you need to go back and look through some of the old posts a little more carefully to understand the reasoning of most of the people here who are investing in SAP. It would also be useful to read _The Gorilla Game_ by Moore, Johnson, and Kippola. In brief, the theory is that a company which meets certain criteria has the potential to become a "gorilla" in its sector. Examples of companies which have achieved gorilla status in the past include Microsoft, Intel, and Cisco. I couldn't possibly do justice to the theory here (if you're interested you should read the book). In any event, if you accept the premise of _The Gorilla Game_, the inevitable conclusion is that it is virtually impossible to overpay for a company which is early in the gorilla cycle. The hypergrowth of a young gorilla demolishes any traditional valuation model you could come up with. So while it's relevant to argue the merits of the theory, or to argue that SAP does not fit the profile of a gorilla, asking why we're investing in a company whose projected earnings growth is less than its PE ratio is completely irrelevant to the discussion.
Moving off topic a bit, I don't understand why you place such weight on the PEG ratio to begin with. It's a nice handy rule of thumb for screening stocks but it's certainly not the ultimate valuation tool, especially given the notorious unreliability of analyst's estimates. If you're going to be dogmatic about things, it seems to me that you're better off sticking to methods which have some solid statistical research behind them such as O'Neill's CANSLIM (for which I suspect SAP would be a viable candidate), O'Higgins' Beating the Dow, or O'Shaughnessy's focus on low PE and low PSR stocks.
FWIW,
Mark |
