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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era
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To: porcupine --''''> who wrote (1162)1/31/1999 10:40:00 AM
From: Freedom Fighter  Read Replies (1) of 1722
 
Porc,

>>I concede that the market quotation on IBM's shares is somewhat extended
relative to the company's recent performance.<<

I know we have somewhat different ways of valuing businesses, but I don't think recent snapshot performance of the 4th quarter is really significant. I do concede that most market participants move stock prices around for that reason though.

I think IBMs main valuation problem is that they're not earning more now than they were 10 years ago despite the greatest technology run ever. You just have to wonder what's going to happen when this boom runs out of steam. And they have a much more leveraged balance to boot as a result of trying to make the EPS numbers and keep the momentum guys happy.

In order to justify such a high PE, you really have to be growing your business pretty rapidly. That's especially true for a Tech company where you would think that the PEs would tend to reflect the greater business risk to some degree.

I think your original recommendation of the stock back a few years ago was a terrific one. But I think the stock price has far outstripped the intrinsic value gain in the last year or more.

Wayne
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