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Technology Stocks : America On-Line: will it survive ...?
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To: Mick Mørmøny who wrote (9642)4/26/1998 8:25:00 AM
From: Mike Hagerty  Read Replies (1) of 13594
 
The Worth article about AOL seems quite negative to me...For example:

"Just to complete your journey through the looking glass, Blodget then makes the case that AOL's stock is relatively cheap at $63.50 a share. Figuring backward from that projected $120 price, he works out the present value of the stock by using a discount rate that reflects both the growth in the average stock and the extra measure of risk posed by a company like AOL. Stocks historically produce an 11 percent rate of return. But AOL, he figures, should return 14 percent a year, to compensate investors for the extra risk they take. Keying his numbers into a calculator, Blodget comes up with the present value of our hypothetical $120 share of AOL stock: $70, about 12 percent higher than its current price.

Before you call your broker, though, remember that small changes in the underlying assumptions about a stock produce huge swings in its value. Mess with the AOL assumptions a bit and you can derive a present value of anywhere from $35 to $88 a share. Which raises an urgent question: How secure are investors' assumptions about AOL?"

It seems to be saying that even Oppenheimer's most ardent bull only thinks AOL is now worth about $70 max (the hypothetical $120 is 5 years from now)-- which is considerably lower than where it's currently trading... And it could be worth as little as $35...
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