LOL.. my forecasts are Gloomy? Good thing we have someone as wise as you on the board.
No need to point out to you that a company earning $0.44 per share priced in double digits has growth built into the price. That should be obvious to any investor with grade school maths and an IQ in the mid 80s.
So three pages of lecture that could be more succinctly summarized as "the business is growing" is true, but hardly useful in determination of whether $10, $20, $30 or $40 is a "fair" price.
Thank's anyway.
I know it's not news to you either that when we buy a stock, our profits depend solely on what we get for it when we sell it, plus any dividends we get in between. So if we are to rationally expect a profit, then we must come up with some sort of view as to what the person buying it from us will want to pay for it in the future, and some understanding of why this might be reasonable behavior.
So Qualcomm. A very simple model. Let's say I buy shares at $20 and I want to sell them in 15 years at a profit of 11% per year (average equity returns). So I want to see that in 2017 the average purchaser will rationally pay $95.69 per share. Either that or I have to assume that I can trick someone into paying $95.69 and that they don't have the foggiest clue what the company is worth. I prefer not to take long-term bets of that nature.
Assuming a share dilution of 4% per year, that makes 1.8x as many shares, or that our future investor is willing to pay $172.24 per today-share.
And maybe by then the 25 year old company has matured enough to a blue chip company and command a traditional PE for a healthy and growing big company of about 17 or so. Which would make expected earnings per share about $10 per today-share.
Which would be about 22x what they are earning today (or 16 x forward pro-forma earnings, if you like).
Is this gloomy? I don't think so, that's a 23% apr growth rate!
Or in terms that folks today might relate. If current results are based on 15 million handset sales per six months, then future results are equivalent to today's business doing 330 million handset sales per six months Which is roughly planetary saturation. And a fairly assigned PE of 17 implies a further two decades or so forecast sustained results at or above this level. In other words, my "gloomy" assumption has to be that CDMA will be the dominant wireless technology on the planet for the next 35 years. You call that "gloomy"? OK. I guess that makes you an optimist.
And this is the "certainty" calculation.
If I introduce the prospect for risk then things go down from there. By a lot more than adding on new widgets, gadgets and non-competencies that the company hasn't yet demonstrated. Particularly in light of other incompetencies that the company has already demonstrated. 15 years ago we didn't have the Internet.
Nevertheless, assuming that a dominant technology today will be dominant 15 years from now and then for 15 years thereafter is not exactly a pessimistic stance.
Feel free to disagree.
John. |
