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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Andreas who wrote (42024)	2/11/2001 10:44:04 PM
From: brunn	Read Replies (2) \| Respond to of 70976

Andreas, As you can see from my previous post, it is about as difficult to predict the price AMAT will bottom at as it is the time. I do feel, however, that current P/E's are rather unreliable calculations for cyclical companies. How can you value a company based on earnings when it is possible for the earnings to fall to break even or negative? How should we value semiequip companies during a downturn? Some have mentioned Price/Sales as a more reliable measurement as atleast sales will not fall to levels like 0 or negative. The problem with Price/Sales is that if you use historic Price/Sales to measure AMAT you will ignore the improved margins that it has achieved over the last few years. AMAT deserves a higher P/S now because it keeps getting more E out of the S (and that's why P/E in the end will be better to value most companies--just not good for cyclical companies in a downturn). Book value would be good but AMAT has not been at book value since I began to follow it. Book value is an excellent way to value small caps in this industry by the way and worked for me with BRKS and MTSN. Both bounced appreciably off their book value and BRKS almost fell to its cash value! This frustration in trying to reach a bottom value for AMAT brought about my previous post's calculation: Calculate AMAT based on how much they fell relative to peak earnings the last time they were in a similar sad state. It's the best I can come up with. I feel that the prior cycle's peak earnings is much more valuable than trough earnings. That is because it reflects where AMAT will quickly rise to once the turnaround is achieved. AMAT is cyclical but the beauty of its cycle is that each new cycle achieves higher earnings than the previous one.