b_spiral wrote:
I want to put together a Coles Notes (style), 5 year revenue estimate for a number of Gorillas, Kings and Princes. I want it really simple and conservative. All I really want is market cap and a guess at 5 year growth.
I like that last sentence the best - "a guess at 5 year growth". Historical data tells as that the 'average' analyst growth prediction for the 5 year period scores better than their 12 month prediction.
I will provide a link that I like to use which provides the 'average' EPS growth estimates as well as revenue growth estimates for 12 month and 5 year periods. As well, the chart shows how the company's stock price has traded historically this past decade in relationship to the 12 month forward EPS estimates. If you buzz through a number of ticker symbols like Cisco, Microsoft, Intel, Oracle, Qualcomm, Sun Microsystems, Network Appliance or EMC - you can see how in 1997 the CAPs of all started to 'rise' based on the growth and the interest rate environment. This 'rise' was not confined to our technology investments, but also took place in other sectors as well. You will see the same thing with stocks like General Electric, Wal-Mart, Home Depot, E*Trade, Schwab, Coke, Pfizer, Merck & Co., etc... .
The question remains how much those will be adjusted in the current interest rate and growth environments. Obviously, we've been seeing some adjustment.
Here's Cisco:
marketplayer.com
Dell makes an interesting study to see where it has been and where it has returned:
marketplayer.com
You asked about Redback Networks:
This gives a growth estimate of 52% which is too conservative. If I assume 260M$ sales and 52% in five years I get 2109M$ which is still good. But if growth was 100% for 5 years it would be 8320M$. Do you have any suggestions as to how to go about this?
You really have to listen to the CC's or read the notes of each individual company to see what there own comments on the 12 month growth period is. In the case of Redback, it is much higher for the next 12 months than what the data you will find of 52% growth suggests.
You can find my CC notes from the Redback most recent quarter here:
Message 14560842
with corrections here:
Message 14563542
Redback's management has given conservative revenue guidance for 2001 at $645 Million. Depending on what they report for Q4 of this year, that's more than a 100% increase for the full year. They have $163 M in the first three quarters of this year and Q 4 will take them over $200 M probably between the $200 - $260 M range. If they hit their $645 M conservative revenue target of $645 M next year, it's obvious that 150% growth is more than the 52% growth estimate we see listed at various sources. No matter how you chart the 12 month or 5 year growth estimates, it's difficult to find analysts that will nail down a specific number closer to the company's guidance. Therefore, listening to each company's specific CC helps me to gather the information which is more specific than what you will find at a website which lists the 'average' number from the analyst community.
I still consider going out beyond the 12 month period all the way to the 5 year period as being a WAG. That's my own opinion and I don't put too much weight on such extended periods in time as well as the 'guesses' for that time frame. That kind of projection does work with solid, stable, more mature growth companies that target a specific growth rate. Most of them are outside of technology. (Harley Davidson being one of my own personal favorites due to management's focus on controlled growth in the 15 - 20% range.) Then you can make an educated 'guess' for the 5 year period. However, young companies with technology in the early stages of their technology adoption life cycles require a different focus than the 5 year period. Some of those companies may not be around in 5 years due to the elements of their respective 'game'. There will be consolidation as well as failure in enabling-technology games. Software is a more forgiving game, but hardware isn't.
Mike's response to you was an accepted method where you calculate the best cast scenario as well as the worst case scenario to come up with an average. In spite of that, going out 5 years for young companies early in the TALC that are in a 'game' becomes a WAG. You won't find a professional analyst going out 5 years and saying anything very concrete. Hence, the risk/reward scenario for young companies in a 'game' is at a heightened level as opposed to established gorillas. This is the reason the manual suggests the basket strategy and it is the reason I use it in my personal investing. In the case of the optical sector where Redback's SmartEdge product competes, I own several of the top players in my 'basket' excluding Nortel and Lucent. I don't own those two because according to the research reports I study, market share is being built in favor of the newer niche players that have the 'best of breed' technology/software combination.
I'm not sure if one can simply 'go to the beach for 5 years' using a basket strategy in emerging areas as consolidation will take place in the industry as well as one's portfolio. It's yet to come, but that day will arrive at some point.
BB |
