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Technology Stocks : Internet Analysis - Discussion

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To: Chuzzlewit who wrote (2)	2/1/1999 3:41:00 PM
From: Joe E.	Read Replies (1) of 419

HI. Followed your discussion from the AOL thread. I am a DCF analyst too. One of the tricks I use is what I call a halflife analysis. Based upon the past growth rate of revenues and earnings per share sometimes you can discern a pattern of declining growth rates. Of course these growing-like-a-weed companies HAVE to slow down and eventually become just part of the regular economy at some point, otherwise they will consume the entire stock of energy coming from the sun and stored within the earth. So sometimes the pattern looks like this: 100% one year then 80% the next year then 64% the next year, with the growth approximating X% of the previous year's growth. Figuring out the X% adds another variable, but it allows one to come up with a glide path for growth over the future. Once the growth gets down to 20% or so, the stocks look more like stocks with comparables. It is easy to get your spreadsheet to produce present values of companies with various initial growth rates and various X%'s. If you find a company where the growth is not slowing down, then the evaluation is even more intractable.

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