About

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Andrew T. Gillies is Director of Communications at the Center for Audit Quality, an affiliate of the American Institute of CPAs, in Washington, DC. Based in Washington since 2002, he has also worked in editorial and communications roles at the Investment Company Institute, the World Bank, Forbes, and Vault.com. His policy-themed writing has focused on aerospace and defense, energy and environment, transportation, and financial services.

Monday, April 22, 2002

Technology On The Cheap

NEW YORK - It's been a bad year so far for many technology stocks. On a relative basis, information technology stocks in the S&P 500 have lagged behind the performance of the broader index by 10% in 2002, while the exchange traded fund tracking the Nasdaq 100 index has lost 17% of its value since early January.

Despite these declines, many technology bellwethers are anything but undervalued. Cisco Systems and Intel carry estimated 2002 price-to-earnings (P/E) ratios of 48 and 43, respectively. In contrast, the S&P 500 sells for 30 times estimated 2002 profits.

Using the latter multiple as a benchmark, we looked for cheaper technology investments. Autodesk (nasdaq: ADSK - news - people ), for example, has an estimated 2002 P/E of 17. The San Rafael, Calif.-based firm's AutoCAD software is popular with animators, mapmakers, and architectural and mechanical designers.

Down 18% from a 52-week high of $47, Autodesk shares look undervalued by several measures beyond estimated earnings multiples. The stock sells for 11 times cash flow (in the sense of net income plus depreciation and amortization) versus a five-year average price-to-cash-flow multiple of 13.

Full story at Forbes.com