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To: Mohamed Saba who wrote (32501)	10/21/1999 4:55:00 PM
From: wily	Read Replies (3) \| Respond to of 93625

Mohamed, I will grant you that there are large variations in the way PE is applied (or not applied) to valuation. Some people consider it useless. I used to follow it a lot but have gotten away from it for some time now. But back when I did, I did notice a rough correspondence between ROE and PE, and if you read Barrons, they are always using this measuring stick. I'm not sure how it works -- maybe one of the accounting types can fill in here, but over the long haul I believe there is a mathematical reason for this correspondence. To use your example of MSFT and the other three leaders: INTC, DELL and CSCO, based on Zacks consensus earnings for next fiscal year, these are the results: Co. Price Book Earn ROE PE ROE/PE MSFT 88 5.40 1.84 34 48 1.4 DELL 43 1.33 1.03 77 42 0.54 INTC 71 7.72 2.67 34 27 0.8 CSCO 67 3.50 1.24 35 54 1.54 AVERAGE 1.05 Since 1.0 would be a perfect correspondence I think I have made my point. Obviously, there is a large variation from the mean. A company perceived as being able to continue its returns, or just perceived favorably for whatever reason is given a premium to its PE and vice versa. w