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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: Joe NYC who wrote (168616)	7/23/2002 11:13:36 AM
From: Robert Douglas	Respond to of 186894

Valuations lower than 1x sales are not that uncommon in many industries, and I am not talking only grocery stores. Price/Sales ratios vary across industries. Generally speaking, the higher the profit margin is (net income/sales), the higher the P/S ratio. Also, growth of earnings will demand a higher P/S ratio. Taking it one step further, there are industries that have higher profit margins on sales because of the amount of fixed investment. For example, if a company needs $1,000 of fixed investment to produce $1,000 in revenue, it will need a much higher return on sales to survive than a company that gets $10,000 in revenue for the same capital investment. Semiconductor production requires a considerable amount of capital investment and the fabs tends to have a short equipment replacement cycles. This helps explain the higher net margins and ultimately the higher P/S ratios. Intel managed 20-30% margins during most of the 90s. This warrants a P/S ratio many times the "average" company. Since a 20 P/E ratio and a 5% ROS equates to a 1 X P/S, you can see that Intel type margins produce very high P/S ratios. What margins Intel has going forward will determine what the markets value it at. <duh>