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Technology Stocks : PSFT - 1997 Outlook [closed thread] -- Ignore unavailable to you. Want to Upgrade?

To: Mr Logic who wrote (752)	1/20/1998 12:19:00 PM
From: Melissa McAuliffe	Read Replies (2) \| Respond to of 940

<< Is Peoplesoft going to be twice as big as SAP is now? >> Five years is a long time to expand the product line, markets or to achieve growth through acquisition. Just because SAP is big today doesn't mean that PSFT cannot be twice SAP's today's size in five years. Who knows what areas of opportunity will present themselves. Outsourcing can be a very large business as we all know. And what about the huge international market which PSFT has barely touched.(Though today that is probably not so bad otherwise we would be worrying about Asian problems like everyone else) What other ideas might PSFT have on the drawing board. I guess if we had access to their five year plan we could answer this question better. But I have confidence in the company's ability to grow. Who ever thought ORCL would be a $4B company?? Melissa

To: Mr Logic who wrote (752)	1/20/1998 2:38:00 PM
From: Chuzzlewit	Respond to of 940

Patrick, I think your profitability and NPV assumptions need to be revisited. First, why would you assign a P/E of 10 for a no growth company? This will obviously depend on prevailing long-term risk-free interest rates and the perceived riskiness of the company. If a company is not expected to grow it should have yield of about 5% plus a risk adjustment factor. This is the risk-adjusted discount rate which must be applied to all of the future cash flows. Second, it is unrealistic to assume that the company will simply stop growing at the end of five years.It might be reasonable to test the assumption that the following five will see 25% growth, and the ensuing five year period will witness 10% growth. Therefore, to get the kind of answer you seek you would need to calculate the NPV of a perpetuity growing at the specified rates. One thing is clear -- the market expects much more of PSFT than 50% per annum growth and then no growth. Regards, Paul