To: eDollar.com who wrote (304 ) 2/8/1999 7:30:00 PM From: Ben Wa Read Replies (1) | Respond to
first, the earnings quality is very good - their accountants are not playing any "games". Second, let's give Perot the benefit of the doubt and assume that the numbers Morgan Stanley was using are actually too low. Let's give them $.70 eps for next year instead of the $.63? In a bull market, people will leapfrog over the 1999 eps estimates and price stocks off of year 2000 estimates. This is even though for most firms, making next year's estimates ASSUME making this year's numbers. So, the $.70 assummes everything clicks just right & that the overall market stays bullish. In such a case, you could give it a premium to both the revenue and eps growth rate, so give it a 35PE on next year's estimate of $.70 = $24.50. That could be what it is worth today. Where it could be a year from now is more important than today's value. If we remain in a bull market for another year (who knows?), and if Perot Systems can maintain a high P/E (remember that as it gets bigger, it gets harder to maintain its growth rate), for 2001, maybe they can earn 1.28 x $.70 = $.90? So, at today's close of $58, it is trading at 64x 2001 earnings estimate. That is probably higher than even the fastest growing profitable BIOTECH stock! But lets say in a year, it can maintain a 35 PE on the $.90 - that gives a fair value in 12 months of $31.50. Let's say I'm wrong and they even earn $1.00 per share in 2001 and you give it a 40 PE in 12 months on the 2001 estimate. That's still only a fair value of $40 in 12 months. The thing is, since it's primarily day traders trading it and they only look to scalp a point here and there, it wouldn't matter if the stock were $158 a share today, since day trader's trade on INTRADAY momentum. If I were day trading this, all I can say is that at the end of each day, I would be darn sure that I exited the day flat.
