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Technology Stocks : TAVA Technologies (TAVA-NASDAQ)
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To: JDN who wrote (7089)12/10/1997 3:15:00 PM
From: Skeptic  Read Replies (4) of 31646
 
Okay, I'll take a crack at it to get things rolling.

I'll start with Red Chip's $1.02 in FY1998, $2.50 in FY1999 and FY2000, $1.00 in FY2001, and $0.50 in FY2002 (no millenium bug here). I'm assuming that the Y2K windfall has wound down by 2002 and that the core business generates $0.50 in that year.

Now I'll assume that EPS grows at 15% in perpetuity from 2002 on. I'll pick 20% as my discount rate (GE's implied discount rate is somewhere around 12%).

These assumptions result in a current value of $9.34. Not a bad return from ~$6.15 today, but a long way from $45. Note that almost exactly half of the value ($4.62) is its discounted value in 2002 when its earning $0.50 and growing at 15% forever.

Obviously, any and all of my assumptions are open for discussion. I'll gladly compute the implied value with any set of assumptions others wish to offer and defend.
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