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Technology Stocks : PALM - The rebirth of Palm Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Tom R. Clarksburg who wrote (4317)	3/19/2001 6:10:26 PM
From: David E. Taylor	Read Replies (1) \| Respond to of 6784

Mang/Tom: I don't think MSFT's PEG has exceeded 2.0 since 1994, which was the earliest I owned the stock, when it was already a well established, on its way to monopoly status company with an annual revenue run rate of almost $5 billion. By the time Palm gets to $5 billion/year in revenues - by 2003 if they can keep it up - they'd better be getting more than the present 4% after-tax to the bottom line. To justify a share price of even say the $68 that's been discussed here, if they are still at a 50% revenue/earnings growth rate at that point, they'll need an EPS=$0.68 at a "high growth" PEG of 2.0 (P/E=100), and an EPS=$1.36 at a "more conservative growth" PEG=1.0 (P/E=50). $0.68/share of earnings translates into $390 million of after tax earnings = 8% of sales at $5 billion. $1.36/share of earnings translates into $780 million of after tax earnings = 16% of sales at $5 billion. Dell at its height used to sport an 8%, now it's more like 5-6%, ORCL and CSCO were running 30% last year, nearer 20% this year, MSFT around 40%. So IMO it's a stretch for PALM to get there with hardware making up the bulk of sales. OTOH, the targeted 25% of revenues from OS and other high margin sales would get them up to around the 20% mark a la CSCO/ORCL. If they execute on the business plan, well and good, and PALM could easily be over $100 in 2003. But if they fall short, no chance. Jm2c worth. David T. P.S. Oh for the days of last year when P/E "didn't matter". Who knows if we'll ever see those days again? Maybe the markets and investors will have short memories and forget this last 6 months pretty quickly!