Cary, If I accept your assumptions, use your calculations, and turn the crank, I'll get your results. That's circular logic, not a proof.
I'm actually looking at something else. In the last several cycles - and I firmly believe we halfway through a cycle that WILL end eventually - AMAT has risen from a low of about $20 per share (not split adjusted), risen to split above $100 twice or three times, then fallen back from the $50-$60 range to the $20 range.
The one exception was the aborted Asian Flu cycle, in which we only saw a single split.
I currently see no factors that would end this cycle early; on the contrary, I see it continuing longer than usual - in part because the last one stopped prematurely. We've gone from a $22 low and split once so far. Extrapolating the behavior pattern, AMAT should rise above $100, split once more, then rise towards $100 once more. That's the basis of my guesstimate of a $200 (current $) cycle top.
$200 is about 3x last week's price of $70; $70 is about 7x the low of $11 (adjusted for the intervening split). I don't consider the result to be exact, but broad guidance.
The market is partially driven by numbers such as you present, but more so by unquantifiable psychology. Exuberance drives PE's above your mathematically correct point, and pessimism drives them below. I'd feel more comfortable considering a two-sigma carpet plot of the possible outcomes instead of a single stake in the ground.
Regarding AMAT capacity expansion - I've been there when they've added space. It goes in fast. They have a half-full campus here in Austin, with a significant chunk of the company's manufacturing capacity. By this time next year, I expect them to have tossed up another building or two where they currently have three dedicated to manufacturing and one to admin offices. I'm certain they have contingency plans - and permits - in place to fill the entire campus.
- Mitch |
