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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: John F. Dowd who wrote (66356)	3/23/2002 12:18:13 PM
From: Timetobuy	Read Replies (3) \| Respond to of 74651

What's the world coming to? You'd think msft could outperform Safeway which has debt, lower margins, not exactly superb growth! But nope, it's up 12% since I bought it in Oct. Even debt ladden GM is up nearly 50% and last place, continuously troubled Disney is up about 30%. Msft was over 62 that day. Yup, I missed upside on msft, but I'm not feeling too poorly now. Msft is trading for a FORWARD p/s of 9 plus the cash they have on hand (no debt) and a FORWARD pe of just under 30. It will grow earnings next year over this year by 8% and revenues by 13%. Just wait until msft's former growth kicks in! (What was that growth rate anyway? I don't think that we ever plugged in any numbers to see how msft will be able to grow at it's former growth rate yet). Before 1997, msft traded for a p/s of 6-9 (without backing out the cash) and a pe of 25-30. I am pretty sure the growth rate was higher in those days, so I'm equally surprised the stock isn't higher now! ROFLMAO! It's actually priced on the high side of it's historical range (prior to 1997) despite lower growth rates. Cash in the bank is nice, but it's not going to make up for slower growth. I don't really see much downside in msft, but the upside is limited and most likely just trades in a range until it sees higher earnings which we know are going to increase rather quickly, right? Contrast msft with sebl which will grow earnings 30% next year and revenues 18%. Forward p/s (net of cash) of 5.3 and a forward pe of 42. And sebl has been getting whacked on it's valuation too. With it's growth rate, it will be easier to grow into that valuation than a slower growing company. Take another example: Merq also trading for a forward pe comparable to sebl but a 38% growth in earnings next year make it more reasonable on a pe basis. With a nearly 25% growth in revenues next year, it's no slow grower indeed. Forward p/s is over 6 (and I wouldn't back out cash because the convert they issued created more debt than they have in the bank). Vrts earnings will improve 33% and revenues nearly as much as merq. Forward p/s (cash backed out) of over 7 and a forward pe of 46. Most definately pricey but peg is less than msft. And lastly symc which I picked up when msft was almost 90 bucks a share back in 1999 for a split adjusted price under 8: Forward p/s under 5, revenue growth of 20% and earnings growth an anemic 15% (ahem, not compared to mighty msft, but compared to the others I own), a forward pe of 29. This one is probably the best comparison on a valuation basis to msft. Growth is higher (numbers are probably going up when earnings come out since FY is ending in March), p/s is less than msft, forward pe is about the same. What's good for msft is good for symc, so I think I'll stick with the smaller cap stock that can probably grow more in the long run. For now, I think that these stocks have limited upside in the short term, but longer term they're going to break out much quicker than msft will due to their smaller cap size and growth rates that will move earnings up faster as the economy improves. It's not really about the trial, it's about the valuation. When msft's growth rate returns (as you seem to believe it will, but I have doubts myself that it will improve significantly), the stock will fly. Until then it's just going to languish in a trading range. You can sell calls when it gets back to the 70 area. Unless earnings improve significantly, it's doubtful it rises much above there. Great company, great stock for widows and orphans to write calls on and collect some money on until earnings improve. Good news is on the way: Msft FY ends in June. After that we look at earnings and revenues (and cash in the bank) for FY 2004. That should improve the valuation especially if msft really does see significantly higher growth again. My other stocks will have to wait until next January to be valued on another year's earnings. Maybe msft will outperform my other software stocks in the short run, but in the long run, it's doubtful. Cheers!

To: John F. Dowd who wrote (66356)	3/23/2002 5:16:15 PM
From: Niels Larsen	Read Replies (2) \| Respond to of 74651

Problem is, earnings wont be as "projected". When PC prices approach $400 or so, the computer makers profits will be so low that they cannot afford to pay Microsoft for the ystem. Microsoft will watch and see how much alternative OS's will be pre-installed, and then probably follow by reducing heir prices and earnings. And if the stock keeps lagging the market, the employees will start dumping before their strike prices get hit. And they wont be able to dominate the server, and embedded devices dont look too good either. So the outlook doesnt seem very good to me.