Just to show you there are other opinions, here is an article from Jubunks Journal, written just a couple weeks ago. He seems to hold an opinion similar to mine. He touches on the same line of reasoning.
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Sun Microsystems shows a similarly unjustified, in my opinion, combination of slowing sales and rising projected P/E ratio. Over the last five years, Sun's earnings have grown an average of 41.5% a year. Analysts are projecting 21% for the fiscal year that ends in June 1999 and 18% annually in the next five years. As with Intel, there's nothing shabby about these numbers, it's just that they don't seem to be a reason to pay more for Sun's earnings stream.
Sun Microsystems is a great example of why a rising projected P/E ratio and a declining earnings growth rate make me nervous. The only way that paying more for a falling growth rate makes sense is if you assume that the reduced growth rate will continue longer into the future. That's a tricky assumption with technology stocks, and a bet that I'm only willing to make when a company has a lock on its market (for at least five years) and great, deep management.
I think Sun's management passes the test, but I don't think the company has anything like a lock on its core Unix server market for five years. That core business remains under attack from the next version of Microsoft's NT software (now named Windows 2000) and from Intel's next generation Merced chip. (Editor's note: Microsoft publishes Investor.) Granted, it looks like both the new version of NT and Merced will take longer to get to market than either Microsoft or Intel would like, but they will come. I certainly don't think either product dooms Sun, but I'm leery about paying a price that stretches out my exposure to this battle. |
