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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: ToySoldier who wrote (12685)	11/28/1998 12:14:00 AM
From: ed	Read Replies (1) \| Respond to of 74651

Market cap is nothing more than a number. 10 Billion of market cap is a big one couple years ago, and now people are used to couple of hundred billion of market cap. In the near future, we will be used to market cap of couple of thousands billion. As the scale of economy grows, market cap also grows, so is the total outstanding shares. The most important thing is the growth. If a company's business does not grow (saturated) , a PE of 10 does not mean anything at all. The current high fly of the internet stocks is based on the expectation that they will make big later. If these internet companies can not deliver, the investors will be in big trouble. But we know Microsoft can always deliver.

To: ToySoldier who wrote (12685)	12/2/1998 10:49:00 PM
From: nihil	Respond to of 74651

RE: Market cap OK, I'll tell you why market capitalization is important. According to discounted cash flow analysis, the price a stockholder is willing to pay represents the present value of the future cashflows to the owner of a share of stock. If this price is greater or less than the market price, the stockholder will buy or sell some more until he is in equilibrium where his DCF = market price. The market capitalization of a corporation at any point represents the sum of all individual positions times the market price. Any time earnings expectations increase or interest rates decrease, market price increases and contrariwise. Of course, stockholder may be deceived. I have no idea where internut cash is supposed to come from. With MSFT, the stockholder cash receipts come from the various alternative schedules of selling off the stock. Obviously capitalization of a stock that pays no dividends and has no plans to pay any is completely dependent on expectations and can fluctuate wildly with changing conditions. Nevertheless, comparison of capitalizations of two or more companies is the best single way of comparing what the market values future earnings to be. When a company with skimpy "real" assets like MSFT (but huge off-balance sheet IP and Human Capital) has a huge price to book ratio, and another firm like IBM has a much lower one, it demonstrates that investors think MSFT is much more efficient than IBM in making money. Of course, with all investors in equilibrium, each will have adjusted his portfolio to reflect his own beliefs about future cash flows.