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Technology Stocks : Novell (NOVL) dirt cheap, good buy?
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To: EPS who wrote (25467)2/16/1999 6:38:00 PM
From: E_K_S  Read Replies (1) of 42771
 
Hi Victor - I still do not see the revenues growing at a 10% rate let alone a 35% growth rate. What forward PE are you using for FY99? I still remember that several years back Novell was estimated to earn over $1.00 and they were selling at $20....

Those earnings never happened....NetWare sales went flat (and even had negative growth) and no new products on the horizon.

Now everybody is getting excited as Netware sales may now have bottomed and may even grow 10% next year. It still does not justify a 35 PE!

Novell has some very interesting "new" products in BorderManager and Digital Me but still these products will contribute a small percentage to Novell's total revenues...even two or three years out. Do these new products justify a 35 PE ....maybe IMO but the total revenues from new products is still a VERY low percentage to overall revenues.

Therefore, if NetWare can only grow 10% and represents over 65% of their FY99 revenues Novell's PE should only be 10 (ie. equivalent to the expected future growth rate). It appears to me, that the market has already priced a premium into the stock to reflect these "other" revenues (from their consulting business & new products).

Have I missed something here? Even the free flow cash flow is now positive but how much of a premium do you pay for that....especially after spending all that money for the new building.

I just can not justify a PE of 68 or 35...but maybe 20.

EKS
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