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Technology Stocks : EMC How high can it go? -- Ignore unavailable to you. Want to Upgrade?

To: Tony Viola who wrote (4917)	3/16/1999 10:37:00 PM
From: WTSherman	Read Replies (1) \| Respond to of 17183

<5. You didn't answer my question about the valuation of some internet stocks I mentioned< Tony, quite right I didn't address your question on INUTZ stocks. First, and most obviously there is an intensely speculative environment surrounding this group. This, of course, inflates the prices. The speculation is fueled by the fact that it is still very difficult to envision(no less calculate) the potential scope of internet related business. This means that any attempt to "value" these stocks by putting them in the context of other business' is impossible. Also, you mention MSFT, as I said before I think that MSFT is a special case because of the near monopoly position they are in with so many of their products and the incredible leverage this gives them as a software producer. There is no significant "cost of goods" associated with software. All the costs are front loaded and the question of profitability is strictly related to the size of the market opportunity and the competition. In the position that MSFT finds itself today it doesn't really have much to worry about it either of those cases, or at least nothing to worry about in the near term. CSCO or DELL may be much more relevant to EMC. The biggest problem I have is that the multiple associated with a company like DELL is based upon a growth rate that is not sustainable. The current P/E is supported, in large part, by the notion that DELL will continue to grow at something like the rate that it has grown in the past. Yet, if DELL were to continue to grow, over the next five years, at the rate it has grown over the past five years it would be larger than IBM by 2004. This just isn't going to happen, its inevitable that the larger a company gets the harder and harder it is to grow. Without the growth the P/E of 80 on DELL isn't justified.