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Technology Stocks : TLAB info?
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To: Vted who wrote (2797)7/27/1998 1:51:00 PM
From: Bob Martin  Read Replies (2) of 7342
 
Well, the basic problem here is that the old rule of thumb "P/E ratio
should equal next year's growth rate (PEG)" is so far off as to be
a joke. Using a discounted cash flow model, and assuming a 9% discount rate (read "The Warren Buffett Way"), a PE of 49 can be
supported by assuming:

a - 7% earnings growth forever
b - 20% earnings growth for 5 years, then 5% growth thereafter
c - 13% earnings growth for 10 years, then 5% growth thereafter

Now of course, this requires guessing what you think future years
growth rates will be. Analysts estimates are usually only available
one or two years out, so you have to figure this out yourself.

I guess what it comes down to is, there are many ways to value a
company, and sometimes different models give widely divergent answers.
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