"Making a Million in Internets" Part IV, how to value an internet stock. To be honest there is really no magic to it, you just need vision and common sense. True you often will have a hard time putting a price on an internet so lets keep this simple. You can't value an internet like a soup company. An apple is not an orange so lets move on. An ISP is not the same as a ICP and can not be valued the same.
Your homework was to write down how you value a stock like DELL. I asked you to do this to get you thinking and to make a point. Now that you are thinking about earnings, growth, split history, mergers, etc., what you look for in a company, we can get to the point. You value an internet much like any other stock except I believe it is EASIER to pick a winner no matter how many different internet companies there are.
OKay how do you eat an elephant? One bite at a time? How do you value an internet? The same way. Step one: There are two basic types of internets, TYPE I, internets that are making money today (AOL, CMGI,YHOO,GNET,etc) and TYPE II, internets that do not have earnings (some may never make a dime). For the most part TYPE I internets are "safer" bets that TYPE II. So when you value an internet the earnings question is very, very important. No matter what CNBC says some internet do make money and they are the ones most likely to make you money.
The second step to valuing an internet stock is so simple it is hard to believe I've never heard one "expert" talk about it. Stock splits, look it up. Any internet that splits is in the fast lane from then on. These are the companies that are here to stay, the companies that make you money. Never fails look it up. These companies can triple your money in no time, and that is "value" enough for me. Split means way more than P/E with internets. Think different, an apple is not an orange. Just these two factors alone will lead you to making money (not losing it) when you invest in internets. It really is that simple with "Blue Chip" internet stocks.
You can still value TYPE II internets but this requires vision so some people will never be able to do this. The main things to do is first ask what is their business, ISP, ICP, etc. now use your vision.
Look for an increasing pattern of growth, revs, page views, customers, advertising dollars, etc. Don't worry about P/E when a company has no E, look for other indicators . What are the chances for a merger? Is there hidden value? (eg GNET=SI, how much is SI worth as an IPO?).
Always remember in the internet it is Product, Product, Product. Wall Street does not fairly value many of the internets, TYPE II higher risk, no profit stocks often are priced higher than a stock with its own special product and earnings. You just have to be smarter than an uninformed public and with all the bad information about internets in the media, being smarter is not hard to do.
The internet is the radio, television, railroad, the airplane, the telephone and anything else you can think of all rolled into one. It really is when you think about it. Nothing has ever grown as fast, changing life and business styles so quickly or had so much upside. Small wonder you can't put an exact price on the internet stocks. When Bill Gates said that we don't even know what the internet "is" yet, what he was saying to me as an investor was "here is a blank check, all you need is a brain and a pen".
The key is to invest mainly in TYPE I stocks and not to buy at just any time but when they get wacked. You can look this up on any TYPE I chart. If you buy when ever they get wacked 25% or more, you will soon have so many 909ers you will lose count of them all.
The key is not to get greedy, when you are saying this is too good to be true, it is time to take profits, sit back and wait, for as sure as the sun will rise tech stocks will get Billy Jacked, sooner or later. This really is simple, does the company have earnings? Have they split?
You don't even need vision to make money on some internets.
Believe it or not TYPE II stocks (with a little practice) are not hard to value but that would take several post. This series was for my pal Joan and it was about how to make a million in nets. A 909er is value, no matter what the company is really worth.
Mainly with internets you must always remember Rule 1 of all stocks, "Thou shall not freak". Just sit back and enjoy the Techride. Internets are tech stocks on LSD and steroids, so relax.
Joan I hope this helped. It comes with the standard disclaimer for those that read any thing I say, this works for me, may not for you, never invest what you can't lose, always do your own homework, etc.....blah,blah, blah.
I learned about internets on my own, some times the hard way. I learned using my money not OPM, you pay attention when it is yours. 909ers to all my pals. BLUE
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