mindmeld - Using your model, you should get $110 for 2005 share price, after fixing inconsistent assumptions.
What do I mean by inconsistent assumptions? You have Net Operating Free Cash (OFC/Share * Shares) as a percent of Net Revenue rising from 36% to 50% from July 00 to July 05.
At best it should be flat or decreasing.
In other words, initial OFC/Share projections are overstated.
If you set Net OFC constant at 36% of your projected revenue, and divide by CSCO shares outstanding (my math assumes 7% dilution rate), you get 3.7 for July 05 OFC/Share, and using your target 30 P/OFC/Share, get $110 as target price.
Finally, testing your assumption that someone will pay $30 for $1 OFC in 2005 requires a projection of what we think they will see when they look forwards (or we pray they are clueless).
I extended your extrapolation out beyond 2005 so I could do NPV on free cash flows. To make it work out either needed to see (a) revenue streams heading north of obscene, or (b) the guy you plan to sell to shouldn't expect to get his money back for a generation or so.
If you find an extrapolation that works and is entirely consistent, please post it.
Until then, seems to me that for these prices, a better model to use is that the purchasors of the future will be clueless and pay more for it than I bought it for some strange reason.
Might be that the collective purchasors of the present are clueless too. Or maybe fundamentals aren't driving the price!
Supply and demand my friend.
And like the price of gasoline, it's just not logical.
John. |
