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Technology Stocks : THQ,Inc. (THQI)
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To: Quad Sevens who wrote (10062)3/1/1999 1:54:00 AM
From: Todd D. Wiener  Read Replies (3) of 14266
 
Wade-

I think the P/E=growth rate concept is related to my discussion about future cash flows and time horizons. It seems to work fairly well with the 8 year horizon. If a company were to earn $1 in 1998, and it will grow by 15% for the next 8 years, it would produce approximately $15 in cash flow. Therefore, it should trade at $15 now. That's a P/E of 15.

If THQI is going to grow by 30% for the next 8 years, based on 1998 EPS of $2.00, it would produce $62 in the next 8 years (without discounting the cash flow). Based on trailing EPS, that's a P/E of 31.

Obviously there are other considerations, such as market dominance (i.e. MSFT, CSCO, INTC), but the P/E=growth rate is a general guideline that approximates the stock price to expected future cash flows.

Todd
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