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Technology Stocks : SAP A.G. -- Ignore unavailable to you. Want to Upgrade?

To: LindyBill who wrote (2124)	8/6/1998 4:04:00 PM
From: Blair Osborn	Respond to of 3424

It's fair to compare SAP to Microsoft, but not to Intel or Cisco. The latter are hardware companies with huge capital investments; costs of goods sold are much higher than for software companies, hence gross margins are lower. A great software company is about as good as you get for generating huge cash flows with minimal cost. It SHOULD trade at a higher premium. I worry about Intel at PE of 28; I also worry about SAP with a forward PE of 70 or higher. Momentum is all at this point. Still long on SAP and holding.

To: LindyBill who wrote (2124)	8/6/1998 4:06:00 PM
From: growthvalue	Read Replies (2) \| Respond to of 3424

"Hey, Growthvalue, we are kind of getting down to "how many angels can dance on a pin"" It's not as mystical as all that. I'm familiar with "The Gorilla Game" - that doesn't change the fundamental drivers of valuation. Those drivers are growth rate and return on invested capital. That's why you benchmark companies in the same industry, not with other "gorillas" - as you said, INTC is growing more slowly. BUT they also are far more capital intensive than SAP or MSFT. MSFT and CSCO are NOT growing at about the same rate as SAP. SAP had 60% revenue growth in the past quarter - MSFT and CSCO had closer to 30%. If SAP were to trade at a similar multiple of earnings as MSFT or CSCO, it would be grossly undervalued. The only reason that SAP could possibly trade at this much of a premium to PSFT would be if SAP threatened to make PSFT extinct. NOT GOING TO HAPPEN. The premium would come from the fact that you would not be able to forecast PSFT out very far because you didn't know if they would last. Now I think maybe you CAN forecast SAP out a LITTLE more aggressively than PSFT due to its gorilla status - however this would not result in a premium of 50%. It looks like the market agrees (at least today). Also, look at ASND (not sure of the multiple off the top of my head) but I don't think CSCO is trading at a 50% premium to ASND, which is no gorilla.

To: LindyBill who wrote (2124)	8/6/1998 4:28:00 PM
From: Mark Marcellus	Respond to of 3424

<<we are kind of getting down to "how many angels can dance on a pin", but yeah, a gorilla should trade at a 50% premium to a chimp. Get Moore's book, "The Gorilla game", best thing I have ever read on tech stocks. Intel is trading at about a 28PE because it is getting to be an old gorilla and its growth has slowed.>> Lindybill, I absolutely agree that a gorilla deserves a 50% premium to a chimp, but I think your portrayal of Intel is incorrect. Intel has historically traded at a PE below 20, and I believe the higher PE they sport today is due to greater confidence in their ability to deliver strong growth in the future. There is no question at this point that Intel is a gorilla, and investors are paying up accordingly. SAP is a different story, and the high PE should give people pause. They are by far the most promising in a short list of gorilla wannabees, but they ain't there yet. If they do make it, there's no question that today's price will be cheap. One possibility that concerns me, which I haven't seen mentioned here, is that the ERP business will become "bowling alley forever" as described on p. 32 of _The Gorilla Game_. "These markets never transform from niche to mass, but just continue along as a series of niches." If that happens, SAP as a company will do fine but a PE of 100 would be a tad high. FWIW, Mark