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Technology Stocks : INPR - Inprise to Borland (BORL)
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To: TTOSBT who wrote (1488)10/27/1998 9:43:00 PM
From: Cube  Read Replies (1) of 5102
 
T,

>>If it was as easy as looking and comparing PE ratio's then we'd all be rich.<<

Something as easy as comparing PE's is essential to understanding the valuation of any investment you are contemplating. I am long on YHOO but that is because the next two quarters most assuredly will give the first annualized PE of around 100. That might be rich compared to GM's 9 but GM wont grow earnings at a rate of 100% per year, all indications are that YHOO will. As long as YHOO delivers 100% growth, the market will probably continue to reward it with a PE of 100. INPR and MSFT are a terrific comparison because here you have two companies with equal PE ratios, about 45. One company MSFT deserves it's PE because it is still growing its earnings at better than 40% per year. The other company INPR does not deserve it's 45 PE ratio because its earnings growth is ZERO! Not even the most optimistic analysts are predicting INPR to grow earnings at anywhere near 45% in the near or long term. Most software companies that have terrible earnings ALL claim to be in a turnaround phase, INPR is no different. But most software companies that have flat earnings growth command a PE of around 10. That gives INPR a current PE valuation of around $1.50 per share, but since its breakup value is $2.30 per share, that is very probably where INPR is going to trade and probably just as soon as the most recent stock buyback program has been exhausted. This is of course just my opinion, but it is based on straight forward valuation comparisons minus hype.

Cube
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