Hummingbird Comm. (HUMC) Message Board

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Technology Stocks : Hummingbird Comm. (HUMC)

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To: Paul Loucks who wrote (1578)	4/29/1998 8:58:00 PM
From: Dr. J	Read Replies (3) of 2018

I also am confused by point 2). You can't just add up cash flows over 5 years to get a valuation. Instead, you have to look at what present value investment would generate those cash flows at an appropriate discount rate. If one used 6% (risk-free T-bonds) you would get approximately $30M/0.06 = $500M which about equals the market cap. Of course, you can't use a risk-free return (because why would you be in a stock if you could get the same rate in T-bonds?), and you can't add the cash flow valuation to the rest of the calculation. That all said, my FCF valuation suggested a price of about US$40/share . However, I was really spooked by the fall off in the connectivity business; the data warehousing piece is not going to grow nearly fast enough to make up for that. Software companies like this going through major busines transitions typically have flattish revenue and decreasing earnings for several quarters or years until starting to grow again. I'm on the sidelines for now.

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