How do you justify a 60 PE for any stock? Market PE's for all stocks will vary at different
stages of bull and bear markets- obvious.
But under a median circumstances, a company (and they are extremely rare) that can grow
at 30% per annum, will increase its earnings 3.7 times in a five year span
What multiple is that worth? It will depend , in part, on then future expectations of continued
growth, and that, admittedly, gets a bit into fantasyland.
But, since we are discussing the theoretical as related to QCOM, let us assume it will earn
1.00 this year and, with a 30% growth rate, 3.70 five years out. If the stock then sells at a
30 PE its price would be 111. If you are satisfied with a 15% compound annual rate of return,
that converts to a present value of 55.5, or about 55 times the current low end earnings
estimate.
Please do not ask me to justify a 30 PE five years out. If the earnings actually do grow at a
compounded 30% a year with continued good prospects, the PE should actually be higher.
But it is a circular calculation and depends heavily on actual earnings performance. Without a
high level of confidence in the earnings future, one should not be in this stock.
Of course |
