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.

Pastimes : The Justa and Lars Honors Bob Brinker Investment Club Thread -- Ignore unavailable to you. Want to Upgrade?

To: MrGreenJeans who wrote (432)	7/21/2000 9:44:24 PM
From: Dave Shares	Respond to of 10065

<<Instead of having earnings grow at 23% you may find earnings growing at 10% to 15%. Moderation by my definition. >> In my opinion, the only reason that the market will value a stock to yield a triple digit P/E like many are valued on Nasdaq (assuming they have any earnings), other than tulip speculation, is because of analysts that believe that companies can increase their earnings at huge multiples (i.e. 100% in some cases) and continue that rate of growth over 5-10 years, which will yield a stock with a P/E ratio closer to what the market has lived with historically. Once it is determined that this kind of earnings growth is not sustainable, or as you say, once earnings growth moderates, these valuation models, in my opinion, go right down the drain. And that is what I believe represents the greatest risk to the technology sector at their current valuations. David

To: MrGreenJeans who wrote (432)	7/21/2000 9:54:13 PM
From: Justa Werkenstiff	Respond to of 10065

MGJ: "Instead of having earnings grow at 23% you may find earnings growing at 10% to 15%. Moderation by my definition. Mike Holland said it best this week he said earnings may slowdown but it does not mean the market will dramatically fall it may just increase more slowly." OK. I believe the market has yet to factor in that slowing growth. Earnings expectations continue to be raised and the valuations do not reflect the slowing growth. We are near record valuations. Comparisons will not be favorable starting Q1 of next year at the latest. At some point, rightly or wrongly, the market will question the durability of earnings in your "moderating" environment and the validity of earnings projections going forward. The questioning process itself should not be a pretty to the market no matter what the outcome. Market can overreact to the downside. This may well turn out to be the Brinker rollover. Moreover, Holland seems to have neglected to mention anything about inflation. So let's assume a moderate growth in inflation and assign that view to Holland. I'd bet money that this was his view. So, on the one hand, you have got slowing earnings growth at best and, on the other hand, you have moderately rising inflation. Inflation creep in a slow(ing) growth environment will not necessarily bring the Greenman and Company to the rescue in the form of policy easing, at least not right away. This all sounds like a recipe for multiple compression to me and also sounds like a market that has a great deal of risk.