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

To: Dwight E. Karlsen who wrote (8086)	5/28/1998 6:10:00 PM
From: Hal Rubel	Read Replies (1) \| Respond to of 74651

Microsoft PE RE"What's your hope? I'veheard you mention MSFT trading next year at a PE of 30. Considering earnings are not going to come crashing down, that would indicate that at this point you suspect the "p" portion of the equation would need to contract a bit from here. I'm not outright saying you are bearish on MSFT, but your comments would seem to support this view." Why I think Microsoft's PE will approach 30x over the next 2 years: Microsoft is a growth company. Thirty times earnings sounds reasonable to me for a growth company. Sixty times earnings may be appropriate for a growth company with optimistically unlimited growth potential. Why would a stock sell for sixty times earnings?: Because people do not know what it's potential is and choose to err on the high rather than on the low side. When the bounds, means and direction of growth come into focus, more traditional evaluations by investors tend to prevail. The era of DOJ scrutiny is just beginning, is likely to be long term, and is clearly a milestone in the evolution of Microsoft on the corporate road to maturity. If Microsoft gets court endorsement for its current plans and practices, or if Microsoft can garner anti-trust law immunity due to a perceived uniqueness, then current high PE levels would be justified for another two years at least. HR I would stock up on this stock issue if it should approach a PE of 30 because I do not think the Department of Justice will break up Microsoft's hold on the Intel platform. However, I do expect the DOJ to limit Microsoft's use of its OS dominance to by pass having to compete in the market place in order to create monopolies in other areas.