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Stockwatch: the 1990 scorecard.

Wall Street ended 1990 amid rumblings of war and recession. Retailers complained about a less-than-bountiful Christmas; banks scrambled to salvage a few dollars from collapsing real estate loans; corporate leaders predicted a year of belt-tightening and hiring freezes.

Despite all this doom and gloom, though, software stocks finished the year in surprisingly good shape. More than half of the NASDAQ national companies we follow actually gained in value during 1990, and nine rose at least 30%--a gain that's typical of the rate of return that venture capitalists say they expect to find only in more speculative investments:

Overall, the chart suggests that software stocks did pretty well in 1990. If we simply average gains and losses for these 20 companies during the year, we see a net increase in value of 14.8%. That compares favorably to the NASDAQ Composite Index for 1990, which dropped 17.8%, and the Dow Jones Industrial Average, which lost 4.34%. (Last year's gain, however, wasn't quite as good as 1989's 25% average increase.)

As we've noted before, software is an industry full of niches, each with its own set of market dynamics. So even though the numbers add up to a respectable year, it's still hard to find broad forces that explain the trends. Consumer software companies, for instance, took a beating last year from weak videogame sales, a factor that had no impact on business software producers. Borland, selling spreadsheets and databases, became a star; Lotus, Ashton-Tate, and even Microsoft lost value substantially as players in the same markets. If there are industry-wide trends at work here, they're pretty subtle.

One way to see how broadly Wall Street values software companies is to look at the price/earnings ratios for our 20 companies. Usually, companies within an industry group share reasonably similar P/E ratios, on the assumption that the past history (i.e., the company's recent history of profitability) is a reasonable guide to future earnings. But the ratios on our chart wander all over the map, from a low of 7 (Software Toolworks) to a high of 41 (Bloc). At least to the investment community, looking like a hot company seems to count for more than the mundane business of making money.
COPYRIGHT 1991 Soft-letter
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:stock performance of software publishers
Date:Jan 17, 1991
Previous Article:A wide-area market leader?
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