The actual pattern is not critical. The overall rate of compounding is. At some high rate and at some low rate you have to think "this rate of projected compounding is unrealistic."
Which may be helpful, if you are solving the problem backwards. I.e., what rate of average growth does the current number represent and is it beyond the bound of reason. If it is beyond the bound, then fine, the question is answered. But, if it is within the bounds of reason, then one still hasn't assessed whether is is reasonable for this particular company.
Suppose, for example, that the current number tells you that a 25% compound rate is required -- stiff, but it has certainly been done. Suppose one also has reason to believe that the first year will only be 5% and the second year only 10%. One can still get to the 25% with years three to five being 25%, 35%, and 50%, but how likely that is would depend a great deal on the nature of the company and product. It might, for example, be an underestimation for a company like QCOM where we expect rather explosive downstream growth as 3G really cuts in, but it would be rather stiff for a company which needed to build manufacturing facilities in order to produce its product. |
