To value a high-tech growth stock, you can't just use
expected growth as a multiple. Especially since the expectation is obtained from the progress in relative infancy. If you really maintain that growth over some several years then ok it was worth it, but eventually it slows down or disappoints, or some fraction of tech stocks would, so you're lucky if the actual growth is the discounted growth at the high-end of the price.
So when buying the stock for value, look for a multiple at a discount to the growth, in techs especially where current growth can
be high but industry is always changing so future growth is not assured. Take Intel, you can only buy on the faith that whatever happens, A.Grove will out-produce, out-develop, etc. If you believe that then the multiple can be even better than real growth. This also
depends on continuous appetite for better PCs, so it requires a lousy PC to begin with so its a constant battle between mediocrity and superior product. Too superior and there is no reason to upgrade.
For USR, you only need about 25% future growth for the current price to be good, and since it still looks like 40% its a pretty good margin. So in better times it will get nearer to fully valued and even over-valued but since everybody wants to hold the stock that is going up in the next month, the price fluctuates. |
