hi John,
interesting analysis of SEBL. i suspect one could find similar results for many of the US large cap tech cos. sooner or later greater-fool investing has got to go IMHO.
one comment--you assume a 6% T-bill rate, but that's what the rate was like a year ago. now bills have a 2-handle. but probably the risk-free rate one would want to compare to is the 10-yr T, which has a low 4-handle now that is goosing some longs into calling an S&P PE of 25 fair value (never mind that this only equates to a T return if one assumes the la la land pro forma numbers are "take-home money", and that it provides no risk premium).
in any case, given the high volatility of large cap tech growth, a discount on the order of 11-12% is not unreasonable imho.
what the 10-yr T return really tells us, in my opinion, is not that the S&P deserves a really high PE, but that earnings growth will likely be very low over the medium term. so what i would say is, even an assumption of 30%+ growth in your more conservative case may be wildly optimistic. if SEBL can grow adjusted free cash at, say, 12% compounding over the next decade (from your generous 100 million base), i reckon that will be quite an accomplishment. so what does that work back to in NPV, assuming an 11% discount? |
