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

To: CO who wrote (43348)	4/28/2000 2:04:00 AM
From: Byron Xiao	Respond to of 74651

Hi, CO, if MSFT isn't broken up, then you have to use the traditional valuation tool to look at its value. At about $70, MSFT carries a PE of about 43. With respect to its earning growth for the last year, which was about 21%, the stock seems to be over-valued. But not so fast, the computer software industry as a whole has a PE of 88. So compare to Peter Lynch's model, MSFT is 100% overvalue, but compare to the "new economy valuation matrix", MSFT is 50% undervalue. So who's right? To answer this question, we should take a closer look at current market environment with respect to the S&P 500 stocks, the expected growth this year for these 500 companies as a whole is 10.4%, for MSFT, it's 20.9%. In other words, the valuation of MSFT should be twice as much as the S&P 500 stocks. The average PE ratio of the S&P 500 stocks is 25.9. The PE ratio for MSFT for the current year is 40.4. But do you believe the S&P 500 at the current level is overvalue? I do not think so, especially after the "correction" we had this month. I believe that the S&P 500 stocks will end up at 1700 this year, given that the corporate profits still look very strong, and this being an election year. That's roughly another 16% appreciation from the current level. If you don't believe S&P 500 is overvalue like I do, then I think MSFT should deserve a PE of about 52, which is about $90. With a 16% appreciation, this stock should hit $105 by the end of the year. However, don't forget the law suit. It's definitely clouding the company's future. I would advice everyone to use cautions when making a decision in purchasing this stock. Take a specific look at what kind of remedy DOJ is seeking and how will that affect MSFT's business practice. So the stock definitely looks cheap now, but moutains of uncertainty are facing this company. I would not load up the truck to buy it now, I will cautiously buy on the dip. CO replied to a message I replied to John: IF Microsoft is not broken up, where do you see the price going? Here is my original message responding John: John, how the hell did you get to those numbers? $80 for the internet company of MSFT? That's over $400B, more than the twice of the combined value of AOL/Time Warner + Yahoo, which owns three of the top 4 portals in the whole frigging planet. Who the hell will give that kind of valuation to MSN and some junks? I would be crazy to pay anything more than 50B. which is comparable to Yahoo. Even though they have a monopoly on desktop PC's OS now, when others offer free OS, you can't keep charging them 200 bucks per PC when the hardware only costs 600 bucks, right? The Windows company would be facing some very tough competitions. That's going to be a cut-throat market. I say it doesn't deserve to be valued at more than 150B. The Office/apps company should do very, very well. I actually incline to pay $50 for that part. No one is even threatening MS office at this point. Overall, the break up company would worth $85 in the current tech doomsday environment. A breakup at this price is cheap in my opinion. Now, if we are in the same climate as when NASDAQ hit 5K, then how high it will go will be driven by how greedy investors are. But I see value at around $65, definitely.