I am not trying to be difficult, but it appears you are putting the cart before the horse. The mere fact of stating that a company is reaching maturity is an assumption and I have found that the less assumptions, the better. Since less and less public companies are paying dividends as compared to the 60s and 70s, I think it is fair to say that the US public markets are at least in part being occupied by growth companies. Now, suppose that these companies actually do grow to perpetuity, or at least until they are put out of business or bought out. Does this automatically invalidate your assumptions before we get started? Just because the cash cow model was the king of the past does not necessarily mean it is true for the future.
<There is no discretionary funding. No buyouts of other companies.>
As old as GE is (100 years+), the aforecaptioned statement still doesn't hold true for it. Think of the acqisition binge GE Capital has been on. Even the old stalwort IBM attempts to be a growth company (with no growth, of course:-), with significant discretionary funds going into R&D (micro channel, OS/2, DB2, VMX, thinkpads, JAVA, etc.) and massive marketing through Internet channels, as well as a healthy M&A proram (reference several billion in cash paid for Lotus). They invest money agressively, reference Java funds and IBM telecomm networks and even do some private equity investing such as in NetObjects.
Now should investors project over 60 + years out into the future, as in the case that would be necessary with IBM, or should they attempt to tackle the valuation situation in nearer term?
As an answer to your question in the last line of your post, your assumption is fair given the criteria you specified. It is just that I don't agree with the "maturity" speculation.
With all of this being said. I do think that AOL is awfully expensive. It was an outstanding oppurtunity just a couple of months ago (I think they are one of the strongest strategic players on the Net contingent upon the NSCP deal closing), but alas the hype has caught up with it. |
