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To: michael modeme who wrote (701)	3/1/1999 9:47:00 PM
From: Miguel Octavio	Read Replies (1) \| Respond to of 10934

I hope I did not say "that a company's growth rate should always be equal to its P/E" . What I hope I said was that NTAP's P/E is double EMC's but teh growth rates (in earnings) are very similar. NTAP's in the last five quarters has grown from 3.4 million to 6.3 million or 85%, EMC on the other hand has gone from 128 million to 201 million or 57%, but the P/E is 70. Can this difference be justified in the same field? To me only if NTAP's growth is accelerating, which could be happening but I dont see evidence of it yet. Your argument is OK, but why 5 years, why not 10? or 2? each scale of time would give you a different answer. Compound interest changes the answer a lot. In general, we have seen that tech comapnies have had P/E's higher than their growth rate in the last ten years (I think MSFT has grown by 43% but its price has grown by 55% in the last five or ten years, I read that yesterday), but one can not take many years as the extrapolation because few industries give you 100% growth or even 75% for extended periods of time. I think it is an art. If a company has a P/E of 100, and grows by 100% it takes 6 and a half years to generate the price of the stock in earnings. If the same comapny grows by 75% it takes 8 years and if 50% it takes 11, so it makes a difference. I will not scale the price, I would scale the earnings, that is you assume NTAP will mantain its P/E forever, I prefer to look at the earnings. Assume EMC is $100 and NTAP is $50, EMC makes 1.42 per share in one year and NTAP made 33 cents. If both sustain the rate for 8 or nine years, then NTAP will give you your original investment back in one year less than EMC and it would have been a good investment, but can it be done? That is the question that everyone would like to know. There is actually an interesting study that barrons published a while back that said that the "outrageous" P/E's of the nifty fities in the 70's were justifiable in terms of what most of those companies made in the next twenty years. However, some of those companies no longer exist. If you bet right you would be fine. Sorry if this is too long, this is the type of discussions I like to have about stocks. Miguel