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

To: johnd who wrote (12881)	12/2/1998 3:05:00 PM
From: Reginald Middleton	Read Replies (1) \| Respond to of 74651

<So let us increase the PEG from 1.0 to 1.1 => 132. One can use whatever PEG one wants.> I don't use PEG, it is IMO a bunch of hogwash. <The real revenues growth is about 30%. Theoretical max trailing EPS now, is $4.00.> There is a hole in your theory here. Revenue growth is actually trending upwards (the parenthetical are my approximations of product release effects on revenues). Remember, these revenues are deferred for three years so are pessimistic as shown: 89' 36.0% (Dos 5), '90 - 47.3% (win 3.0), '91 - 55.8% (Win 3.1), '92 - 49.7%, '93 - 36.0% '94 - 23.9%, '95 - 27.7% (some office 95), '96 - 46.1% possible result of Win 95, '97 - 31.0% (NT4 intro and beginning of Office 87), '98 - 27.5% (a month or two of Win 98 revenues, and I don't think this fiscal year is complete) For FY 99 we have the biggest release in the history of the company (NT5), the second biggest enterprise release of the company (SQL 7), both at the highest margins MSFT probably has ever has in their history (due to the market they are being released in). More so, the release of Office 2000 is coming, and having beta tested it, I can say that this is probably the best software they have ever made. If you think the pop in revenue after the Win 95 release was significant, watch out. Ignoring the incomplete fiscal year, the arithmetic 10 year average growth of revenue is just under 40% (39.7% to be exact), that's thirty percent higher than the number you used in your calculations, and you included incremental revenue deferrals while the historical figure does not. That alone would debunk your theory. Add to this that MSFT is currently deferring up to 35% of the revenue of its strongest products (Office and OSs) and it looks even brighter. Add to that the fact that revenues for the two years approaching should be uncharacteristically strong due to the successful entry into enterprise computing and (this is all new found money for MSFT, they were a consumer and office desktop company previously). <Reginald, having seen your posts for 2 years, I see the following pattern. When the stock trades at good values like back in Aug, Sept, October when the stock hit 88 you hardly post. But when MSFT stock gets into richer valuations, and there is strong evidence of upward momentum, I see more and more of your postings. I know this is a good way to pull in momentum players into your website. That is good. (By the way I liked your web page). I would like it if you could play it at a fair level. Nevertheless, I respect everything you say and you make a lot of good points. You are just adding fuel to the fire of overvaluations.> First of all, thanks for the compliments on the web site. Yours was a well though out post, even though I can't agree with it. As for your impressions of my posting habits, I'm afraid it is all in your imagination. If you look at the stuff on my site, it focuses on valuation, economic cash flows, the treatment of deferred taxes as equity and other unheard of non-sense such as management strategy. Momentum investors could give a damn about such topics. Personally, I only have two signals, buy and sell, and I never hold anything that I am not willing to buy more of if I had the money. If I give any advice, it would be along those same lines. The reason I stopped posting was because some rather rude guys in another thread got on my nerves combined with the fact that I was just too busy to visit SI. The state of MSFT's share price has nothing to do with what I do for recreation, which is conversing with you folks on these threads. I also learn a lot from a technical perspective for free. I rarely ever comment on the valuation of MSFT (no free rides for anyoneJ), just as I failed to do so here. I just pointed out where I feel your assertion(s) do not hold water. All in all, a very good post, though.