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Strategies & Market Trends : Gorilla and King Portfolio candidates - Moderated
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To: Mike Buckley who wrote (938)6/14/2004 4:23:56 PM
From: Jim Mullens  Read Replies (2) of 2955
 
Mike, re: Qualcomm and “Though the continued increase in FCF per share following last year's 56% increase is terrific news, the enterprise value is now equal to 32 years of trailing FCF. It's very difficult to value a stock when the company is growing FCF so rapidly. Buyer beware for not being in the stock and buyer beware for being in it. .

This is the troubling thing to me about FCF valuation methodology. I’ll admit I don’t understand it, after attempting to read various articles / passages in books.

This is just hypothetical (Quicken site now requires a subscription)

The discounted FCF methodology values Qualcomm in the $60 per my recollection.

This simple extrapolation of EPS and PEs value QCOM at $95 in 2005 and $130 in 2008 based upon a conservative $5.00 EPS and 26PE. In 2008 there should be plenty of growth left in the Q as GSM should be mid-way into WCDMA conversions.

...........EPS...Growth-%...................PE.....................$/sh
...........................yoy........N 5yrs..... w/ PEG 1.7
2002 $0.98........
2003 $1.40........42%
2004 $2.05........46..........24%.......41.......................$84
2005 $2.56........25..........22%.......37.......................$95
2006 $3.20........25
2007 $4.00........25
2008 $5.00........25..........15%.......26.....................$130
2009 $6.00........20
2010 $7.00........17

IMO one has a fairly good chance of at least doubling their money in four years (EPS growing to $5/sh- conservative), yet it’s my understanding that the DCF technique with its discounting mechanism cautions as not worth the risk.

Wonder if the DCF method ever works /worked for projected high growth companies such as MSFT, INTC, CSCO?
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