re:"Why on earth does this stock still trade at a 50 PE?":
Valuation, measured by P/E, P/CF, P/S, is useful relative to the
historical pattern, and when comparing similar companies. As an
absolute number, it doesn't tell much.
For SAP: (from Baseline Profiles)
value,5-year range,current:
P/E, 37-356, 50
P/S, 4.1-14.9, 6.4
long-term future earnings growth rate: 30%
For MSFT:
P/E, 22-77, 77
P/S, 4.6-26.4, 26.4
long-term future earnings growth rate: 25%
So, SAP is at the low end of its historical range. If you're waiting for a
PE of 35, then you're waiting for something that has never
happened, not even briefly, anytime in the last 5 years. Could it
happen? Yes. Is it likely? No.
With the monopoly trials, Java, and the internet, I think MSFT's
market position is no more secure, in its niche, than is SAP's. They
are both huge dominant software companies with a franchise in a
large and growing market. Both have proven management. And
pristine balance sheets. Actually, SAP's balance sheet is better than
MSFT's, if you count all the stock options MSFT has granted, which
are really a lien on future shareholder returns. A large lien. So, I think
the two companies are roughly comparable. And SAP's P/S ratio is a
great value, at only 6.4, compared to MSFT's 26.4 |
