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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Gottfried who wrote (25923)	11/2/1998 3:43:00 PM
From: jelrod3	Read Replies (2) \| Respond to of 70976

Why the love affair with AMAT? Can all of you who follow this stock please explain to me why anyone wants to buy a stock that is trading at a price that is 60 times next fye 1999 earnings forecasts of 56 cents? There are 17 analysts who have provided estimates for AMAT's fye 1999. In the last month, none have increased their estimates, and 5 have decreased their estimates, dropping the consensus from 60 cents to 56 cents. There are only 2 analysts that have ventured a guess about year 2000 earnings, and their guess is $1.51, for a PE of 22 for fye 2000. This is certainly up from fye 99, but is nothing great in the historical context of earnings over the last 3 to 4 years. But this isn't all. The decrease in earnings for fye 1999 ($1.10 to .56) has to be predicated in large part on decreased revenues. This means a decrease in revenue per share, which means an increase in the Price to Sales ratio. AMAT is trading at a projected PSR for this year of about 2.9. The high PSR was 4.4 in 1997. The 5 year high average PSR is 3.0. So we are already at the average high with decreasing revenues on the horizon. If revenues fall to $8 to $9 next year, and the market rewards AMAT with a PSR of 4.4 (the reward could be 3.0 just as easy), this translates to a stock price of $32 or so (and maybe less if the love affair cools). So, why the love affair? I know someone will write back and say what a great company AMAT is, or that AMAT does not trade on fundamentals (that's obvious), but the fact that this stock trades at these levels continues to amaze me. Over capacity (despite plant closings) is still prevalent, as is the foreign economic picture. So, can someone make the case for owning AMAT in 1999? 2000? All of us want to buy and own the stock in anticipation of an upturn in the industry, but being too early by a full 1 to 2 years hurts overall returns beyond any question. Thanks for helping me understand AMAT's future picture.