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We can sit here today, in retrospect, and say:

'Gee - Cisco was really undervalued in 1990 - 1994 even
though I paid those absurd prices back then'.

Bruce -

I'll chime in here.  As you probably know the theory on 
how to value these companies is becoming an ever larger 
thorn in my side, one which is slowly turning me to
investments well outside of tech.

Let's take a look at Cisco P/E and P/S multiples 

       P/E  P/S
1990    9    4 
1991   27    7
1992   37    9 
1993   36   10 
1994   20    4

As a side note, I wonder where Moore came up with the
P/S in the teens rule of thumb for Gorillas.  Cisco 
did not command an end of year P/S in the teens until

My point being that in Cisco you had clear hypergrowth
in arguably the most important infrastructure role in
tech for the 1990's.  What is it about Brocade's 
hypergrowth which commands a P/S over 130 and a P/E
pushing 800?  Somebody please give me a YPEG which 
suggests this company will grow 800% per year for 5 
years.  Redback's P/S is over 140 now.  So much for it
being the "value play" among next gen networks.

I guess I just don't get it.  These are great companies
in a great position, but I don't understand the price
at all.  Apparently the market does (for now) because
they keep going up and up...  Bottom line for me is
we have seen this sort of hypergrowth in the last 5-10
years, and it has never commanded such a rich multiple.

I'm not sure if you were making the point of Cisco 
being "overvalued" from 1990-1994 or not.  I wouldn't
doubt many analysts claimed it was.  But the numbers
themselves tell you it wasn't, even then (well before
our "new paradigm" way of thinking).  The trailing Peg
was well below 0.5 most of the way.  In retrospect it
was damn undervalued.  Not sure I'll ever be able to
say that about Juniper Networks.

Fool On.


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