You are asking for a much higher risk premium than the market is giving
it is not a risk premium; it is the assumed "expected return". the expected return can be set arbitrarily in my calculation. i just assume that "QCOM enthusiasts" would want a market-beating return, which i imagine 13% will be, going forward.
to say that this is higher than what the market is offering is the same as saying that the expected forward long-term return is lower than 13% (with which assessment i agree). at $43, and assuming a wildly bullish 10-yr CAGR of 25%, i calculate the expected return at 9%.
assuming a less wildly bullish 15% CAGR for the next ten years (which would still probably put QCOM in the top 1% of all S&P500 cos based on earnings CAGR for the next decade), i calculate the expected return at around 4%.
assuming a more realistic 12% CAGR for the next decade, which is still fantastic, i calculate the expected return at around 2.4%.
assuming a still excellent, but more modest 10% CAGR....produces an accordingly lower expected return in my calculations.
i should note that my calculations all assume QCOM makes $1 in the starting year (2002), and take the pro forma figures at face value (i.e., as "retained earnings" or "free cash flow").
of course, my calculations could be wrong, but in principle, i don't see what is wrong with the idea of examining the relationship between forward earnings growth and expected return, vis-a-vis the current share price. |
