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The stock is primarily being traded by day traders hoping to scalp a point here, a point there. Everybody knows it's a good company, etc etc. For a true investor who is basing a potential investment on fundamentals, it is trading at a valuation that approaches that of the most hyper growth small internut companies. The problem here, is that Perot Systems is not a small company with a $15 million revenue base in 1998, growing at 70% a year for the next few years. It is already a pretty big company, and has competitors that are not pushovers. In the road show, the Rossman himself said that his goal is to grow earnings at 25% annually. Even in the best of times, such an earnings growth rate would get a P/E of maybe (and I hold my breath saying this)...35 times the next years earnings estimate. Also consider that for a service company like this, the assets are people, and people are not tied down, and in a world where people with excellent information technology skills move from employer to employer, retaining employees is an issue for any IT services firm. Yes, there are the icons of the past few years like Dell, Intel, Cisco that sport P/E's greatly in excess of growth rates. However, such firms usually have created a paradigm shift in very way business is done within their industry, or they are like the NY Yankees of 1998 - they just kick butt. Dell turned the PC retailing business on its head and kicked sand in the face of such giants as IBM, Compaq, and everybody else. Cisco sits at the right hand of God, and Intel - although taking some hits at the low end of their product line, has and continues to dominate the heart of the information age via controlling the leading edge in microprocessors. Perot cannot be placed in the same league as these companies. Nobody is arguing that it isn't a good company. But, if I offered you the best hamburger in the entire world, would you pay $500 for a bite? Probably not. That is where Perot's stock price is today. |
