Given the way highflying tech shares have been whacked around lately, it's easy to forget the whopping price targets analysts placed on some stocks just a few months ago.

There was the 1000 target

Dresdner Kleinwort Benson

put on

Commerce One

(CMRC)

. (That'd be 167 after a series of splits.) There was

Sands Brothers'

250 target (125 postsplit) on

Ariba

(ARBA)

. There was the 300 target that

WR Hambrecht

slapped on

Terayon

(TERN)

.

Traders even coined a term for the practice, joking that a stock had been "Blodgeted," a reference to

Henry Blodget

,

Merrill Lynch's

Internet analyst. Blodget made a name for himself in late 1998 when -- while still at

CIBC Oppenheimer

-- he put a 400 price target on

Amazon.com

(AMZN) - Get Report

. Amazon reached the target just three weeks later -- a 96% gain.

From a pure business sense, Blodgeting a stock makes some sense, particularly if you are a young analyst trying to make your way in the world. "You have a very asymmetrical risk/reward profile," says John Manley, equity strategist at

Salomon Smith Barney

. "No one's going to listen to your first recommendation, so what do you do? You make outrageous predictions."

It's a bit like penny-ante poker. The downside is limited because the stakes are so low. So you do some pretty outrageous things you wouldn't do in a real-money game.

Lately, the game has changed and the stakes have been raised. The

Nasdaq Composite Index

was down 147 on Monday, or 3.9%, at 3669 as several tech bellwethers fell -- including

Cisco

(CSCO) - Get Report

,

Qualcomm

(QCOM) - Get Report

and

Intel

(INTC) - Get Report

. The Nasdaq is down 27.3% off its March high.

Even in an up market, though, there is more to setting price targets than just guessing, of course. An analyst isn't going to make a big-impact call on some name that he or she doesn't believe in. It wasn't the 400 price target on Amazon that made Blodget famous; it was calling the price target and calling it right. If

Babe Ruth

had lined out to the second baseman instead of hitting his "called shot," would anyone have cared?

There is a method to the madness -- though arguably the methods used would make

Graham and Dodd

, those progenitors of fundamental stock analysis, blench.

Part of the problem is that the highflying companies themselves do not offer the main bearing that old-school fundamental analysis works with: earnings. Up until fairly recently, fast-growing companies had at least something dangling off their bottom lines. An analyst could look at the price-to-earnings ratio for a company, compare it with the company's rate of growth, and make some sort of judgment.

Lacking the "e" in a P/E ratio makes that hard to do. And it does not help that many of these companies are growing at a phenomenal rate. In a sense, it's like someone handed you a jar with some sugar water in it and a couple of fruit flies buzzing around and asked you to tell him how many flies the jar would have in it in a day, in two days, in three days. Except that nobody's ever seen these kinds of flies before, nobody knows how much sugar there is and nobody knows how big the jar is.

So analysts fiddle around, and try to come up with something that works. The WR Hambrecht analysts who affixed that 300 target -- 150, split-adjusted -- on Terayon (it's at 61 9/16 now, having risen as high as 142 5/8), for example, took a look at the firm's enterprise value against its revenue expectations for 2000. Then they compared that with other companies in the same space -- Terayon is a leading cable-modem supplier, so it belongs with "leading broadband-access technology suppliers and next generation carrier datacom suppliers" (which is something you shouldn't attempt to say three times fast unless you live in Silicon Valley). Terayon's enterprise-value-to-expected-revenue ratio was, and remains, much lower than the group -- 12, compared with a mean of 54.

"It's a big discount there," says WR Hambrecht analyst Frank LaPlaca. "The company is growing on a sequential basis the same as the rest of the space. If you look at it that way, there's room for multiple expansion there." WR Hambrecht has done no underwriting for Terayon, though the firm does make a market in the stock.

But Rich Bernstein, Merrill Lynch's chief quantitative analyst, argues that the problem with looking at stocks this way is that it ignores whether a whole group is overvalued. He recently compared technology stocks and nontechnology stocks with similar growth rates.

"That's the way you should be valuing these companies," he says. "Isn't it the growth prospect that you're looking for?" Yet the technology stocks had much higher price-to-earnings multiples than did the nontechs, even though they shared similar growth rates. Technology was, Bernstein figured, just an awfully expensive adjective.

An argument against this that is sometimes heard is that Old Economy stocks, even ones with good future growth expectations, simply do not have the same growth prospects as emerging technology companies. Bernstein's problem with this is that it seems dangerous to make such long-term judgments about a company -- particularly if it hasn't been around for long.

Faye Landes is a retail analyst, well-known for her independence and revered for a call she made on

Nike

(NKE) - Get Report

. But lately, for her former firm,

Thomas Weisel Partners

, she launched coverage of some e-tailers -- most notably

eBay

(EBAY) - Get Report

. And she'll soon be hanging her shingle at

Sanford Bernstein

, where she'll probably pick up more. Neither Thomas Weisel nor Sanford Bernstein have had underwriting relationships with Nike or eBay.

She recognizes the kind of growth some of these companies are having. "If Nike came to me," she says, "and said they could increase operating margins by 2000 basis points, I would laugh. But with these 'New Economy' companies, you know they're evolving very fast." But still, Landes has been reluctant to try on newer valuations models.

"I'd have to say wearing both hats has led me to be skeptical," she says. "My training as a traditional analyst led me to believe profits would count at some point. A lot of the New Economy, throw-all-care-to-the-winds stuff ... I knew that wasn't going to last forever."