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To: Miguel Octavio who wrote (700)	3/1/1999 8:11:00 PM
From: michael modeme	Read Replies (1) \| Respond to of 10934

I don't understand the reasoning that a company's growth rate should always be equal to the price/earnings ratio. Let's suppose that NTAP is growing at 50% a year, and EMC is growing at 35%. Let us further suppose that NTAP's P/E is 100, and EMC's is 50 (to make it simple). Here's how the stock prices would fair over the next 5 years: NTAP's stock price would be equal to $319 after 5 years assuming it is still selling at a P/E of 100 -- a total gain of 659%. EMC would sell at $448 assuming it is always selling at P/E = 50 -- a gain of 347%. An investment in NTAP would be around twice as good as an investment in EMC. Conclusions: 1) valuations must be made based on changes in P/E ratios, 2) stocks with higher sustained earnings growth ultimately make better investments since P/E ratios are fairly constant based on growth rates and the fact that larger market caps demand higher P/E ratios for a given growth rate, and the fact that companies' growth rates are usually inversely related to market cap (slightly). Cheers.

To: Miguel Octavio who wrote (700)	3/1/1999 9:26:00 PM
From: BLong	Read Replies (1) \| Respond to of 10934

<<Income at NTAP is growing somewhat faster than that of EMC, but NTAP's P/E is double that of EMC, it would have to be double to justify it.>> EMC P/E = 68.71 NTAP P/E = 105 (approx 1.5 x EMC) EPS growth for This Quarter, Next Quarter, This Year, Next Year are: EMC 40.38% 31.06% 32.25% 27.83% NTAP 52.94% 43.06% 55.60% 45.31% EMC current price = approx. $100 NTAP current price = approx. $40 Therefore you can buy 2.5 times as many shares of NTAP for the same price as EMC, and the growth rate is higher for NTAP. Sounds to me like NTAP is the better deal.