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Technology Stocks : i2 Technologies -- Ignore unavailable to you. Want to Upgrade?

To: Melissa McAuliffe who wrote (648)	9/3/1998 9:47:00 PM
From: Adam Nash	Respond to of 2339

Hi Kids, New to I2, just placed an order at 14. Been watching ERP for a while now, but only recently do the stocks start looking fairly-valued to me. Bought I2 because of its leadership in supply-chain. I have some experience with the selling-chain side of ERP (worked at Trilogy), but I think all of these areas are going to be big for the next 5 years, and I2 seems to have their act together. I like the earnings projections, and even though the P/E is a bit high now for trailing earnings, it isn't atrocious any more for rolling earnings ($0.40), giving me a P/E of about 35 compared to their LT growth rate of 40+%. Anything over 40% earnings growth projected I tend to just file away as "high". It's hard to predict that a company really is going to have more than 5x the earnings it has today in 5 years, but that is exactly what having a 5-year estimate of 40% means (actually 5.378x) Anyway, someone mentioned the growth rate vs. P/E as a valuation measure. PEG is popular, because it is simple, but it does make some assumptions you need to be careful of: 1) It largely assumes that you know the 6-year earnings growth rate. That is the only way that the numbers work out for all different growth rates and P/Es (if you plot them). This is a fickle number, and small valuation differences can have a big effect. Most people estimate based on the five-year number, but the math technically really wants 6. 2) At some point, it is self defeating. Some traditional value investors claim there is never a reason to pay more than 20x earnings for a company. As you see above, I have problems with numbers bigger than 40x rolling earnings. Any way you slice it, at some point you have to give allowance for the errors of predicting long term numbers. As you can see, I am a numbers and fundamentals kind of investor. I tend to project reasonably 5 years into the future, then discount via the rate I think is fair given the risk and pick a fair value for the stock. For I2, that value is 15, so I'm in. Go I2. Long all the way - see you in 2003.