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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Bearded One who wrote (47757)	4/23/2000 11:15:00 AM
From: Square_Dealings	Respond to of 99985

Bearded One - re: pe ratio Theres no doubt that a majority of stocks, old and new, are overvalued. I think this is especially true in the bigger companies which everyone has piled into on the advice of the brokers and media hype. But if you use pe ratio alone to determine the value of a stock then you miss out on the opportunity for real growth in companies that are developing unique technologies that can rapidly bring new products to market. I trade/invest primarily in small cap tech stocks where I think the best values remain. I believe the recent bubble has been concentrated in big cap tech stocks and worthless IPOs. I see many good small cap tech stocks being thrown away out of fear. Many of them have high pe ratios because they are early in the cycle. Some have excellent earnings and are undervalued by fundamental measures. I am watching because I do expect the major averages to go lower, maybe a lot lower. But I'm watching more closely small caps in growth areas which are more rapidly becoming great values, for signs of a turn. Still a market of stocks. M.

To: Bearded One who wrote (47757)	4/23/2000 12:38:00 PM
From: RocketMan	Respond to of 99985

The P/E ratio could help you predict a future dividend stream which could then be compared to other places to put your money, like bonds. There was an ownership value to stocks as opposed to a future trading value. Dividends and P/E's which predict them place a floor on the intrinsic value to stocks, moderating downturns. You nailed it, oh Bearded One. Unless one is investing in utilities and a few other companies, dividends are only historical appendages. The market has been about future trading value for a long time now -- the greater fool theory, if you wish. But I have yet to find an investor who actually took over a company because its trading price was less than its discounted cash analysis value. The overwhelming majority of stock is eventually traded, so p/e is only a measure of a floor. An important measure, but not a measure of the trading value of a stock. A stock is worth exactly what someone will pay for it, no more, no less.