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Technology Stocks : All About Sun Microsystems -- Ignore unavailable to you. Want to Upgrade?

To: Charles Tutt who wrote (18312)	7/29/1999 3:33:00 PM
From: Alok Sinha	Read Replies (1) \| Respond to of 64865

Can't argue with anybody who feels CPQ may go to the teens. I myself have been considering that possibility for some time now. On your valuation example for SUN. On a relative basis to S&P SUNW may appear undevalued based on your figures. But in determining where SUN should be trading at, you have to consider the following: 1. Historically, the PE for S&P 500 has been in the low to mid 20s. Even taking the higher growth rate into account S&P is 10-15% overvalued given the level of 10 year rates. 2. SUN's beta is probably twice that of the market (defined as S&P), so it will remain volatile. (What I can't understand is, with it record of consistently growing earnings and revenue, without accounting gimmicks, why the stock remains so volatile). Momentum players probably. 3. Historically, SUN's PE has been lower (and for most hardware companies like INTC, IBM and HWP). Within its industry (which is another determinant of valuation) SUn probably commands a higher multiple than most (due to its faster growth rate). So the peer group (for over and undervaluation) is more the computer makers , and less and less the S&P. 3. Finally, from a purely economic basis, the forward PE for a company should roughly equal its expected growth rate. The level of interest rates start becoming an issue in discounting when the multiples outstrip growth expectations (in today's scenario). Regards Alok