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Gold/Mining/Energy : GPW Group West Systems Ltd. (Year 2000 Software Company) -- Ignore unavailable to you. Want to Upgrade?

To: Bernard Elbaum who wrote (429)	4/19/1998 5:29:00 PM
From: Mr. Forthright	Read Replies (1) \| Respond to of 1443

Bernard this company has been in existence for 22 years and only had sales of $4 million last year (and a loss of $200,000). Do you know how many INDIVIDUALS in the US and Canada make more than that in a year. And GPW is proud to say that it took them 85 employees to achieve that? I am impressed. The year 2000 problem will come and go. The big companies will benefit and maybe a few small companies will benefit too in the short-term. And a few promoters will make a bundle. You can't value a stock on potential earnings that are non-recurring. Microsoft commands high multiples because of its dominant market share and strong growth. Not because they have a new product that has a life of 2-3 years. Let me explain this to you using a simple example. Let's say you had $10 million to invest in a private company. You would first determine your required rate of return, let's say 20%. The company you would buy would therefore need to earn $2 million after-tax a year. In other words you would buy at 5 times earnings. But it would need to earn sustainable earnings meaning an income stream that is achieved year after year to maintain your required return of 20%. Now if you buy the company and you know that the income stream is in jeopardy after 2-3 years you are in trouble. The year 2000 problem will help boost earnings of several companies for a fews years but these earnings are not sustainable, therefore they don't warrant expanded multiples. GET IT? GPW has never experienced strong growth in its existing business why should they trade at a high multiple. If they benefit from the year 2000 problem it will be short lived. Their existing business is not worth $45 million and the impact of their INTO 2000 products is unlikely to justify that valuation. The management has no track record of creating value for the shareholders. Buyers beware or you will wear it.