You are extrapolating wildly. EPS are not what you use to value MSFT, they are easily manipulated by altering any deferral or reserve account, adjusting taxation policies, so on. Use economic cash flow as your proxy. I expect revenue growth to do well going into the next millenium, and I expect the street to put a higher valuation on those revenues, just as they have done with ORCL and many of the other enterprise software companies as they have achieved dominace.
A discussion of EPS, especially projected in a linear fashion (MSFT's revenue base is diversifying rapidly, and in the case of the Internet businesses and the enterprise businesses - two of its fastest growers - receive higher valuations than thier historical cash cows) will simply side track us. It does not factor in the different valuations as thier revenue mix changes, it fails to take into consideration the lack of competant competition in certain area, stemming from the fact that it doesn't adjust or account for risk, or give an appropriate return figure. MSFT's return on invested capital is superb, especially considering thier size. Even if you adjust the capital by marking it to market, it is still a decent buy. Not many companies with MSFT's dominance can say the same.
If you have read my "Case Against Earnings" article, you know how I feel about EPS and what its shortcomings are, especially in terms of valuation. |
