Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: Bob Davis who wrote (18506)	10/28/1998 10:13:00 PM
From: JRI	Read Replies (1) \| Respond to of 77400

Bob- You raise some interesting points concerning the valuation of Dell (and Cisco)...Let me raise a couple for you (to respond to).. Based on your valuation criteria, you are claiming that Dell (and Cisco) are overvalued...Now, if one would take that same valuation criteria..and back-test it (applied to Dell and Cisco), I'm am guessing that you would find (that) Dell and Cisco have been (mostly) overvalued during the last several-year period...Now, my question to you is: If you valuation model shows that a stock is over-valued, and that this over-valuation occurs/has occurred (frequently) over a several-year period....wouldn't the next logical step be to either assume there are some variables that (your) valuation model is not considering, therefore, the stock may be/have been less overvalued (than you thought), fairly valued, or, indeed, undervalued during that time.... and for a "return to the mean" to occur (according to YOUR valuation model) a fundamental shift of the (criteria of) how the market values/has valued (that) stock during a long period of time would have to take place...Moreover, isn't it much more likely, that if similar growth patterns and conditions remain in place (for the stock in question), that the market's method of valuation for the stocks in question with continue in force (in contrast, isn't is unlikely (that) a least-likely result is that a fundamental shift (in the way the market values the stock in question) would take place. Furthermore, even were this (a fundamental shift in how the market values the stock) were to occur, there is no certainty that the "new" valuation will closely resemble the one (arrived at thru your valuation method), or even that the stock's price will move in the direction that you assume...(ie., perhaps the new valuation model would show that Cisco is more undervalued than previously thought) Let me state my point more clearly: You are assuming that we are all getting it wrong, and I ASSUME, that you have held this view for quite a while....if I am right, at what point does your model admit that your model is wrong (and not the market)... Also, I would be interested to know if your model accounts for/allow for premiums for stocks (ie. does a stock that has a forecasted future (annual) growth rate of 30%, all other things being equal, but has never acheived one quarter of growth of 30% (never proven itself to the Street).... get the same valuation as a company that also has a projected future growth rate of 30%, and, with all other things being equal with company #1, EXCEPT that the company has consistently met or exceeded Wall Street's expectations in the past..or if one company's management is commonly viewed as "more astute" than another, competing group... There are other questions...but I'll stop here to let you respond..