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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: ed who wrote (37035)	1/24/2000 11:39:00 AM
From: PMS Witch	Read Replies (1) \| Respond to of 74651

How do you judge the worth of Microsoft's stock? Tough question ... Microsoft's value, or any other company, depends on how much profit will be made in the future. The future is difficult to predict, but since assumptions made at this point profoundly effect the resulting conclusions, one must exercise caution if disaster is to be avoided. I'm now in my second decade of holding Microsoft. As such, I've observed how well this company meets challenges and turns them into opportunities, and as well, exploits those opportunities with tremendous agility. I've also seen this company's growth accelerate, plateau, and decelerate. Few can argue that today's growth matches what we've seen a few years ago: Unfortunately, Microsoft's P/E today is significantly above what it was when Microsoft was growing much faster. As Microsoft gets bigger, I'm less optimistic that the earlier stellar growth rates will return. Can I view today's P/E, given today's growth, as reasonable? NO. Will this P/E deteriorate? Yes, but I don't know when. So, how do I determine a reasonable price? I assume that the current lower interest rate environment justifies a higher P/E in all stocks, and this offsets the slower (slowing?) growth rate of Microsoft. I find this assumption attractive because it simplifies the math, and since I'm driving in the fog anyway, precision is unwarranted. This leaves me with correlating Microsoft's stock price with Microsoft's earnings. For many, many, years, the correlation was strong, but recently the stock price has uncoupled from earnings and moved independently higher. (This worries me, although, as a holder of Microsoft and not a buyer or seller, I enjoy the boost to my portfolio, with it's accompanying greater margin carrying capacity.) I simply take Microsoft's reported earnings, add to these numbers my estimate of the 'uncounted revenues' Microsoft seems to sweep under the carpet every quarter, and apply the time honoured connections between earnings and stock price to get what I feel Microsoft 'should' trade at currently. Below this value, I see bargains: Above, danger. I use this method to determine my long-term strategy, which, today is to hold my shares and take whatever pounding the market delivers, because, in spite of being a little ahead of itself, I view Microsoft as a company I want to continue owning. As with all investing approaches, my method is not perfect. There are shortcomings to my reasoning, and I'm sure they'll be soon brought to my attention. I take some comfort in observing that my investing decisions have provided me with reasonable portfolio appreciation and trading profits over the years, and although every position had not worked out perfectly, most have worked out well enough to keep me involved. I don't aspire to trade perfectly: Profitably will do just fine. One lesson I've had difficulty learning was to buy and sell at reasonable prices. Holding out for the best price leads to disappointment all too frequently. Once this idea became assimilated into my investing, profits increased dramatically. Hope this helps, PW. P.S. What do I think Microsoft is worth today? $100.