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Technology Stocks : PSFT - Fiscal 1998 - Discussion for the next year -- Ignore unavailable to you. Want to Upgrade?

To: Tom_ who wrote (2475)	10/4/1998 2:52:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 4509

Tomabre, There are lots of problems when using PEs. First, there is no context. If you invert PE you get earnings yield, so in the case of PSFT that would be 3.2%. But 30 year T-bonds are now below 5%, and PeopleSoft's earnings yield is expected to grow substantially over the next several years. Secondly, the earnings yield of the S&P500 is somewhere around 4.6% with only a 6-7% growth outlook. To get around these problems I use a CNPEG, which is really just a normalized PEG. All you do is take the PEG of the stock in question, and divide it by the PEG of the S&P500. What this shows is that growth is much cheaper when purchasing PSFT than in purchasing the S&P. The S&P has a PEG of around 3, while PSFT has a PEG of around 0.84, so the CNPEG is approximately 0.28! Furthermore, extending this analysis confirms what we already knew -- that smaller capitalization stocks are being hit disproportionately harder than their large cap brethren. Now this may be a function of the greater risk (read variability in possible future cash flows) inherent in these companies rather than the capitalization per se TTFN, CTC