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Technology Stocks : TLAB info? -- Ignore unavailable to you. Want to Upgrade?

To: The ChrisMeister who wrote (2821)	7/29/1998 2:21:00 PM
From: Chuzzlewit	Respond to of 7342

** Still more on PEGs. Chris, there are numerous flaws in the PEG approach. The first, and most glaring is that the focus is on earnings, not operating cash flow. Companies are best valued on the basis of the discounted value of their disposable cash flow. Earnings are much too prone to manipulation, and GAAP accounting really doesn't help the situation all that much. Just look at all of the companies with unjustifiably high deferred income tax liabilities. Why? because they have chosen to recognize revenues that are not considered revenues by the IRS, or capitalize items that should be expensed, or depreciated items much too slowly. And auditors aren't much help. Witness Cendant! The second problem is that PEG ignores long term interest rates. Yet that is one of the major determinants of P/E ratios. When interest rates are high P/Es are low. Third, it ignores capital structure issues like relative amounts of debt, unfunded liabilities and a raft of related issues. Finally, it ignores the impossibility of accurately assessing long-term growth rates. Some companies have fairly well-defined earnings streams. Others are quite volatile. Clearly, this is a risk-adjustment issue that isn't addressed. TTFN, CTC

To: The ChrisMeister who wrote (2821)	7/29/1998 4:35:00 PM
From: PGI	Read Replies (2) \| Respond to of 7342

more PEG >>My advice would be to not be mislead by PEG ratios. As you said, it'll have you passing up the MSFT's, CSCO's, and TLAB's of the world.<< Basically, PEG just says when the PE is significantly lower than the stock's growth rate it's a good buy provided it meets a host of other criteria, the PEG being the final criteria in the process. One criteria is that the stock you are evaluating has a market cap under $500 million. The Fools specifically point out that the PEG is rather meaningless for the MSFT's, CSCO's, and TLAB's of the world. It's a small cap tool. Personally, I don't care much for the PEG, it's too easy to use as a magic bullet; just look at that one ratio and you'll know if it's a buy or sell - doesn't really work that way, does it? And even the supporters of the PEG would say you are way out-of-bounds trying to use that ratio to value TLAB. However, Fool School Steps 1-9 are pretty good; they pretty much fall under the categories of "put your house in order first" and then invest through "due diligence". -pgi