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Technology Stocks : Wind River going up, up, up!
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To: Erwin Sanders who wrote (4505)4/13/1999 10:32:00 AM
From: Mark Brophy  Read Replies (2) of 10309
 
Have you revised your model?

1. 1999 EPS of 0.77 (consensus estimate – likely to be low).
2. Growth rate for first five years: 40% per year. This is the consensus estimate and does not include significant I2O revenue. Nor does it include some of the possibilities we have been talking about here such as internet appliances, DSP, growth in the Auto sector, etc. (all of which are real possibilities and could dramatically push up revenues in the intermediate/long term). Growth rate after 5 years: 20% per year (which is still extremely good as a sustainable long-term growth rate). This is pure speculation. Any thoughts/discussion on this would be appreciated.

It appears that the consensus estimate of 26% growth is right, which jibes with the EE Times article that head count will increase 25-30% this year.

The above assumptions produce a price of $61, growing to $160 in five years' time (21% per year increase). This assumes continued growth for another 5 years at 20% per year.

What is the fair price if you reduce your estimate of earnings growth from 40% to 26% for the next 5 years? Your sensitivity tests take into account a lower long term growth rate and higher interest rates, but ignore a lower short term growth rate.
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