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Technology Stocks : SAP A.G.
SAP 240.02+0.9%Nov 26 3:59 PM EST
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To: LindyBill who wrote (2124)8/6/1998 4:06:00 PM
From: growthvalue  Read Replies (2) of 3424
 
"Hey, Growthvalue, we are kind of getting down to "how many angels can dance on a pin""

It's not as mystical as all that. I'm familiar with "The Gorilla Game" - that doesn't change the fundamental drivers of valuation. Those drivers are growth rate and return on invested capital. That's why you benchmark companies in the same industry, not with other "gorillas" - as you said, INTC is growing more slowly. BUT they also are far more capital intensive than SAP or MSFT.

MSFT and CSCO are NOT growing at about the same rate as SAP. SAP had 60% revenue growth in the past quarter - MSFT and CSCO had closer to 30%. If SAP were to trade at a similar multiple of earnings as MSFT or CSCO, it would be grossly undervalued.

The only reason that SAP could possibly trade at this much of a premium to PSFT would be if SAP threatened to make PSFT extinct. NOT GOING TO HAPPEN. The premium would come from the fact that you would not be able to forecast PSFT out very far because you didn't know if they would last.

Now I think maybe you CAN forecast SAP out a LITTLE more aggressively than PSFT due to its gorilla status - however this would not result in a premium of 50%. It looks like the market agrees (at least today).

Also, look at ASND (not sure of the multiple off the top of my head) but I don't think CSCO is trading at a 50% premium to ASND, which is no gorilla.
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