What Is Value?

Value is in the eye of the beholder...value is ethereal...value is a moving feast (non-stationary)...value is real...value is relative.

What is MSFT worth? What is INTC worth? What is GOOG worth? What is AAPL worth? What is ORCL worth? What is CSCO worth?

After years of multiple compression, things are looking up for the mega-cap techs. I don't know what level their multiples bottomed at but they are slowly seeing an expansion. Most are currently trading around 10x EBITDA. This seems crazy to me when they all exhibit a little growth, have monster margins, strong market positions and competent management. Still technological disruption threatens to undercut all of them and so some level of discount should be applied. But given their premium performance characteristics I would suggest the technological disruption discount should cancel the quality premium out and they should trade at a market average multiple. Given that they are essentially the market (given their size) this could of course be a tautology. Nevertheless, it is not difficult for me to see the market warm to these names and see their EV/EBITDA multiple move out to 12x or 13x. That is another 20%-30% upside tacked on to 10% earnings growth and a 3% yield. Not a bad return.

We have seen a massive move out of the smalls into the large and I don't see that changing anytime soon. The smalls got way out ahead of the game and are now mean reverting.