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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: TimF who wrote (126468)	10/18/2000 9:53:10 PM
From: tejek	Read Replies (1) \| Respond to of 1584203

More attention, higher P/S ratios ect. I was trying to find one word to try to cover all of the related ideas and was only giving myself about a second to come up with it. Imagine a company experienceing hyper growth and it has a huge P/E ratio (or a huge P/S ration with no E). Eventually it matures and grows at a more normal rate. (nothing is going to grow at 1000% a year for ever) When the sales growth slows down the companies stock price gets hit. It was actually considered more valuable when in the past when it was earning less. The fact that the growth would not continue for ever apparently doesn't get discounted, until at some point it gets discounted far too much. Tim, That's because when a company matures, the limits to its revenue and profit growth are more defined and that means the limits to its stock price are more defined. When the stock carries a P/S or an exorbitant P/E, the limits are much less defined. Take the net stocks; when the growth rate of these stocks were indefinable their stock prices soared. As soon as that growth slowed...and I remember when it happened...a research firm about year ago reported that hits to web sites were slowing......not long after that the net stocks began to falter. Its the same with the new IPO's....the ones with earnings are not nearly as explosive and hi-flying as the ones without. There are mature firms like CSCO and SUNW that are still experiencing good growth but they are the exception rather than the rule....and its why their P/E's are still high. Put more simply....the markets strive for rationality but love irrationality. Its that greed/fear thing. And the markets also love the new thing/new stock/new company that will make everyone rich. Thats my take on it. ted