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Technology Stocks : THQ,Inc. (THQI)
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To: Todd D. Wiener who wrote (10068)3/1/1999 7:13:00 PM
From: Quad Sevens  Read Replies (1) of 14266
 
**OT (but essential, LOL)**

Todd: the 8 year period is rather arbitrary, isn't it?
Why use 8?

But OK, using your 8 year period, let's assume one dollar
a year in earnings in 1998. Below is the sum of earnings
over the next 8 years for various growth rates.

1% 8.37
5% 10.03
10% 12.58
15% 15.79
20% 19.80
25% 24.80
30% 31.01
40% 48.15
50% 73.89
60% 111.87
70% 166.98
80% 245.70
90% 356.43
100% 510.00
150% 2541.46

As you can see, the PE = growth rate formula is
pretty good from about 15% to 30%. It
underestimates a current fair value PE
for small growth rates (I was looking at
zero growth in an earlier post, where it fails badly).
It badly underestimates for high growth rates.
(These results give some insight, BTW, into internet valuations.
Not as wacky as some think--if such a
growth rate can be maintained. And if
there actually is an E at some point.)

Wade

PS: The formula

x + x^2 + x^3 + ... + x^n = x(x^n - 1)/(x - 1)

is useful for these calculations.
For example, for 20% growth over 8 years,
you would use x = 1.2 and n = 8.
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