Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Amazon.com, Inc. (AMZN) -- Ignore unavailable to you. Want to Upgrade?

To: Bob Kim who wrote (101289)	4/17/2000 9:40:00 AM
From: Bearded One	Read Replies (2) \| Respond to of 164685

It's just a rule of thumb to apply based on growth assumptions. If you assume a growth of X percent headed out for several years, then P/E of X is a reasonable value. For those companies with P/E/G of greater than 1, the analysts should explicitly state why they think the rate of growth will increase. Brand building is a reasonable argument sometimes. But the analysis has to be supported. Look, suppose you have a company with a Price/Sales of 10 and no earnings. Make the assumption that earnings will come later, after 'brand building'. So we'll pretend that the company is earning money and just spending it fast for building. Even assuming 10 cents of every dollar will become earnings, that's still a P/E ratio of 100. That means you need to double SALES every year for the next 5 years to justify the current stock price. Thats a factor of 32 in the next five years. And the earnings have to show up as well.