How high will Microsoft fly? Message Board

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Technology Stocks : How high will Microsoft fly?

MSFT 507.49

-0.6%

Nov 17 3:59 PM EST

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To: DavidD who wrote (12610)	11/25/1998 6:39:00 PM
From: Reginald Middleton	Read Replies (1) of 74651

<Well adjusting for the risk that MSFT could have it's 1/3 it equity wiped out, no matter how much cash or shares they have on hand, it would seem the current p/e is very high. > I'm quite familiar with risk adjusted return. With corporate entities, the risk is usually measured by it's cost of capital, which in the case of public companies are easily derived from the market's pricing of debt and equity. MSFT's cost of capital is relatively low, with its beta/volatility being lower than that of the S&P 500. The market is well aware of MSFT's ESO funding approach and they still award MSFT low cost equity capital. So, on a risk adjusted basis, MSFT has relatively low risk (as compared to the S&P 500) with a cost of capital of about 9.7% and relatively high return of about 30% compounded annually. I seriously recommend that you read the piece I linked to earlier in regards to earnings. You excessive use of the term P/E in regards to MSFT leads me to believe that you may not be aware how little value earninngs are in the valuation of a high growth company such as MSFT.

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