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# Yahoo! Inc. Message Board

• a2z_and_z2a a2z_and_z2a Nov 19, 2004 2:38 PM Flag

## Fair Value = \$14 / Share

PEG (PE divided by growth rate) is one metric to value stocks. It takes into account the current valuation as well as future growth potential. Comparing different stocks using PEG, puts them ona more level playing feild. Of course there are always other factors to consider.

One theory is that a fairly priced stock has a PEG of around 1. That doesn't mean every stock stops going up at PEG = 1 or that every underpriced stock will eventually get to PEG = 1 but it's a good benchmark. If a stock has a PEG above 1 then the market is in a generous mood, in general or in regard to the particular stock. When PEG is > 1 the stock is obviously priced for perfection and subject to a fast melt down if anything goes wrong with the Co, the market, the economy or a bad geopolitical event.

Yahoo shows it's own PEG as about 3.7

I Calculate 3.3 based on CY numbers and an assumed 30% growth rate.

PE = 100
G = 30%

100/30 = 3.3

A PEG of 3.3 says the stock is overvalued by about 3.3X

Divide the current price by 3.3

38/3.3 = \$11.5

I'll round that up to \$12 to make the longs happy. And then tack on another \$2 for Yahoo's cash per share. That gives us \$14.

Does this all mean it's gonna be \$14 tomorrow or any time soon? Probably not, things just don't work that way. But it is overpriced, and is more likely to fall than to rise going forward.

Certainly the mid to long term likelyhood that Yahoo will see \$20 or lower again is high.

Disclosure - Short a few hundred shares, will be shorter if the price goes up from here.

Good luck to all.

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• Like most of the "traders" (gamblers in plain English), math isn't one of your strengths. Of course, if you were more proficient at math, and if you did keep track of your results, you would have long ago quit trying something so futile as market timing.

YHOO has split twice since I bought a small number of shares at \$198. That would make my cost on those shares about \$49.50 on a split adjusted basis. (My "decline" on those shares (in several years substitute "windfall profit" for "decline") is currently around 25%). On the other hand, I have paper profits of over 600% on those shares that I bought at \$4.99. Just how do you reckon that a 25% loss overshadows a 600%+ gain?

Unlike the market timers on this board, you don't have to take my word at face value. I documented my \$4.99 purchase of YHOO (split adjusted) at the time that I made that purchase:

http://finance.messages.yahoo.com/bbs?.mm=FN&board=4687319&tid=yhoo&sid=4687319&
action=m&mid=365774

Of course, like any other market-weathered "trader", experience has tought you to never post your your trades at the time that you post them. So I can only imagine how well you have done bashing YHOO over the past several years. The truly incredible part of all this, is that with the YHOO having done so well on their investment, you and the other headlice who bash YHOO continue to revel in the few skirmishes wherein you actually made money. As the old adage says, insanity is doing the same that one has always done while expecting the outcome to be any different.

• RIMM - Currently in the 80's fair value somewhere in the 60's....

Don't think I'd be shorting it right now, not so bloated as YHOO. Also selling the blackberries like hotcakes. My Co. is buying them for everyone. I didn't even want one and one day it showed up...

I am short some homebuilders such as NVR, TOL.

• What are your thoughts on RIMM ? It looks over valued to me.

I'm short YHOO at 37. Also hold long positions in other stocks.

T.

• Shorting or going long stocks, both of which I do, (In fact I am typically short a few and long about twice as many) has nothing to do with what percentage of the time the market or stocks are going up or down. While most stocks are effected by the overall market trend, the amount that they move varies.

You go long a stock that you think is undervalued, you go short a stock that you beleive is overvalued. I'm contantly watching for good entry points in either direction.

No matter what your position, it's very unreleastic to expect the market to be on your side the day after you make your trade. Just because I thought Yahoo was way overvalued when it hit \$36 when I started shorting it, I did not expect that it was going to plumet the next day. I was fully prepared for it to continue to rise. In fact I was happy when it hit \$38 because I was able to short more at a higher price.

Sure, I'd be happy if it now went down, but on the other hand I still only have a relatively small short position, so if it goes up, first, that's fine with me too. I'll be happy to short more at higher prices. I'm not at all uncomfortable with the thought of it going to \$40, \$45 or \$50. Why, because I know that it's already overvalued. So, higher prices simply allow me to lower my risk and maximize my later reward.

Yahoo is a good company that has an overvalued stock price at the moment. Fair value today is around \$14. If all goes as predicted next year (.50 EPS) fair value will be around \$18. I expect that it will eventually fall to at least \$20 maybe lower, but who knows. Much depends on what the economy does, what the markets do, what sectors go in and out of favor and of course, if the Co. can meet or beat expectations.

If you are long and sitting on a nice profit, I'd think about taking something off the table. If you are short or considering going short, be patient, average in. And if you have no position and want to go long, this is a risky entry point. Find some stocks that have a better value. Pharma is beat down and there are still some techs that look good. Try OVTI, FRX or IMOS. NXG is a cheap gold play that is on the rise.

Good luck to all.

• That's a great point. I think the facts are that the mkt in general goes up 82% of the time and down 18%.So shorting stocks is a risky event. I'm new on this board and doing a little research on the Insider Selling that's taking place in YHOO. Without going any further than this site it appears as though at least 75% of people posting on here are Bullish, now from what I'm looking at it appears as though the Insiders are really Unloading lately? Does anyone have legitimate input on the normality of all the insider selling thats going on. TKS!

• While markets absolutely defy timing, they inevitably move up over time, Bear markets are the exception rather than the rule.

Most of those who like to talk about how much they made from shorting the market during 2000-2002 fall silent when asked about what happened to them from 1987 through 2000. For that manner, these folks also don't enjoy talking about their experiences from 2002 through 2004 either.

• what about those that had the insight to short mid to top of bubble and ride it down? I know people who did, but I got caught in the buy and hold trap. They made more than any of us will in our life time. Why do you think there are 90 millions short shares held on Yahoo?

• The most that a long can lose on a potential investment is 100%. On the other hand, the long faces the potential of an infinite gain. When shorting, these odds are completely reversed. The potential loss is infinite, and the potential gain is limited to 100%.

Most shorts short either because they fail to understand the terrible long-term odds that shorting offers. Or, they short because they are so desperate for the gamble that they are willing to risk dollars in the pursuit of pennies. Either way, shorting stocks over time is a colossally stupid way to invest.

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