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While acquisitions may increase revenue and stimulate analysts' interest, they are not a certainty now, and, even if they were a certainty, their contribution to cash flow is even less certain (see CSCO purchase of Granite; see Quaker purchase of Snapple). I felt that 25% growth assumption for 5 or 6 years was generous. Acquisitions and new R&D developments are big unknowns that really cannot be factored into DCF model. [This IMHO is one of the reasons tech stocks have such high PE's, a phenomenon that Mr. Buffet has not been able to understand himself though he probably uses silicon technology all day long.] So DCF model usually understates the value of a technology company that can develop great technology. When the market recognizes House's accomplishments and his propensity for developing technology, not only will BAY's price reflect net present value, but will also reflect this ability. How long will it take for the market to recognize? There have been estimates in recent posts which seem reasonable: another two quarters or so? More new technology? How high would one expect BAY to go? My guess: $55 or so?
Caveat: All of this is complete speculation upon which I have purchased BAY. None of it is a recommendation that anyone else buy BAY. As a matter of fact, I encourage others to sell immediately so I can buy at lower prices.
Jackson |
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