Here is a good reason to purchase extreme.
Assume it is Q301. Extreme is forecasted to make .15 (Q3), .18 (Q4), .20(Q1) and .23(Q4)
Assign those cash flows a discount rate of 25% and one gets a Present value of .65
Now, the prior 4 Quarters, assume Q301 is present, they made .15 (Q301), .11 (Q201), .08 (Q101) and .09 (Q400). Assign this a discount rate of 25% and one gets a PV of their prior cash flows of .39
The growth of these cash flows is: (.65-.39)/.6667, or 66.7%
With a P/E of 67, the PV of extreme should be around 44.
If one assigns a higher discount rate, say 35%, the PV of the cash flows are .61 and .37, respectively. Extreme then would have a growth rate of about 65%
65*.61 give a price about 40.
Well, I think there is a saying, a little knowledge can be a dangerous thing... <g> |
