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Technology Stocks : All About Sun Microsystems -- Ignore unavailable to you. Want to Upgrade?

To: Prognosticator who wrote (42664)	4/2/2001 8:39:33 PM
From: Wayners	Read Replies (3) \| Respond to of 64865

Let me get back to you tomorrow with the exact formula, but basically I discounted 7 years of geometrically growing earnings at 30 year bond yield of roughly 5.5% back to present value. I used 7 years of earnings because at a PEG of 1 for a stock with no growth, you get your money back in 7 years which is suppossed to be fair according to Peter Lynch. The less accurate calculation would just take book value of $3.13 + growth rate x (forward earnings) which would be 13 which I got from Sun's revised sales guidance for this quarter and there is no further visibility beyond that and if the .36 is currently right for the next 4 quarters then plugging that in I get $3.13 + 13 x (.36) = $7.81. I like using the sales guidance because I figure for the long term thats an upper limit for earnings growth. There's no way Sunw is going to grow that low for that long IMO, but I think that's basically why you see stocks go so low (and so high) because nobody wants to take any chances. I think we're actually both wrong on the interest rates we're using which just has a minor effect on the price. For discounting 7 years of future earnings which is a resonable payback period for an investment, we should be using a 5 or 10 year yield. The Fed Funds rate is too short for the 7 year period and 30 year is way too long. Lets see if we can get this right tomorrow. I worked out the formula on Friday using my Engineering Economics textbook and would like some validation or comments. By the way I have no position in SUNW but was curious as to where the bottom could possibly be. I think one of two scenarious will happen. Its either going to go to some fundamental value and stay roughly there or the visibility or guidance is going to change.

To: Prognosticator who wrote (42664)	4/3/2001 12:40:21 PM
From: Wayners	Read Replies (1) \| Respond to of 64865

Value=TSE/Diluted Sh + (EPS(1+g)^7)(((1+i)^7)-1)/(i*(1+i)^7)) TSE is total shareholder equity Dilute Sh is the diluted number of shares outstanding (of course thats always growing and should probably be taken into account) EPS is the estimate for the next 4 quarters i is the interest for the payback period 7 is what I used for 7 in years as the payback period g is the geometric growth rate, i.e. each earnings is some percentage higher than the previous years the (1+g)^n is the compound growth factor which is the same thing as the single payment compound amount factor except the i% is replaced by the g%. That gives you the equivalent uniform annual payment A for the geomtric growth. The last factor is used to convert the A to a present value. The last factor is the uniform seris present worth factor P/A. The