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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: Uncle Frank who wrote (39275)2/14/2001 9:48:12 PM
From: Seeker of Truth  Read Replies (1) of 54805
 
We all tend to have some idea about what next week will bring but unlike Geoff we don't air it in public because the short term is unknowable and it's embarassing to be totally wrong so many times. Traders think they know, poor unfortunates.
Our thread seems to agree that valuation matters. I wonder if the following exercise is 50%, 80% or 100% nonsense?
Take Veritas, which isn't one of our gorillas. Let's assume it can grow rapidly for ten years(because we have ten fingers and ten toes) and then will slow down to a growth approximating the GNP growth. What's the latter worth? Let's say 20 times earnings. The recent quarter's earnings for VRTS was 19 cents a share. That is also the profit predicted for this quarter. So multiplying by 4 we get 76 cents/per share current annual rate of profit. Now the growth rate anticipated by Yahoo for 2001 to 2002 is 36%. So 1.36 to the tenth power gvies us 21..6 That means the earnings ten years hence will be $16.45 a share. Multiplying by a 20 P/E that says that the price will be 329. The current price is around 75. This means we will do a little better than quadruple our money in ten years. That's good. It's not as good as I anticipate for NTAP or QCOM, over the same time period but those are gorillas after all.
So is this "valuation method" total nonsense or 99% nonsense?
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