nice Mark's Market Commentary
capitalstool.com
I especially liked this comment
"I dare anybody to go out and look for a small business to buy, and pay a purchase price which exceeds annual sales."
He also points out that INTC has a market cap of $90B on $1B earnings.
"Intel had slightly less revenues than MSFT, and only made a little more than $1 billion. Yet its market cap is still over $90 billion."
Now, I am not sure how accurate those numbers are, so I'll go with some verifiable numbers. Yahoo has a market cap listed as $96B. Looking at briefing.com, it appears that they had about $2B earnings after taxes. So that is the number I'll use to be generous.
So, let's pretend...let's pretend that I have $96B that I want to spend on a business. What would be my expectations? Well, for one I would want to get a return on my investment in a reasonable amount of time. At $2B earnings per year, it is going to take me 48 years to break even on my investment. And that doesn't include the cost of money.
But we can expect growth, right? So let's give INTC an earnings growth rate of 25%.
Year 1 $2B
Year 2 $2.5B
Year 3 $3.125B
year 4 $3.9B
Year 5 $4.9B
Year 6 $6.1B
Year 7 $7.6B
Year 8 $9.5B
Year 9 $11.9B
Year 10 $14.9B
Year 11 $18.6B
Total return at year 11 is $85B
Year 12 $23.3B
Total return at year 12 $108B or about 13% return
Now, let's put that $90B to work for us just loaning it out at 3%. Using 3$ to account for taxes on the gains, though I don't know how accurate that is.
Year 1 $98.88B
Year 2 $101.84
year 3 $104.9B
Year 4 $108.04B
So, assuming a consistent 25% growth rate on INTC's earnings, it would take 12 years to make 13%. Or, I can loan it out where I don't have to worry about silicon valley competition and employees and lawsuits and such and get that same 13% in 4 years.
And I think I was generous with the 25% earnings growth rate and conservative on the 3%.
When I was a product manager at in the tech industry, if we didn't get a return on investment in 18-24months, the project wasn't a go. Why should our expectations be anything less than an ROI that we could get from putting the money in the bank?
So, is INTC still overvalued?
feel free to punch holes in my assumptions |
