Mark, please don't quote me out of context. I never suggested the WIND's growth rate will slow to 20%. When I said, “By decent, I mean a sustainable minimum of at least 20% per annum”, I meant clearly that even it that was all WIND is able to grow, a new investor ultimately will be rewarded handsomely. I used the word “ultimately” judiciously. I did not say the current market would like being told WIND was decelerating earnings to 20%.
I find it interesting that, while MSFT is expected to complete a bang-up year this June, EPS estimates for next year only show a 16% growth. Certainly MSFT's stock is not any worse off for that low estimate. The reason is the Street considers 16% an absolute minimum, probably with something more like 20% expected. Any company that can CREDIBLY grow EPS in the 15% to 25% deserves, and will get in the current interest rate environment, a substantial P/E ratio, well above 50.
WIND's current problem with its stock price has nothing to do with the economics of 40% versus 20% EPS growth rates. The Street would go nuts for any company that can sustain growth above 20%. The problem is that lots of companies are “expected” to grow rapidly, and many do for short periods, but few, very few, can sustain high growth. The frequent disappointing actual performance causes the Street to discount legitimate estimates much more than justified economically.
You then said,
When will the growth rate slow down to 20%? If it happens soon, the stock price is going to crash. Remember, the 1996 secondary offering price was 12, so someone who invested and held for 3 years still has a 50% return. The growth rate looks like it will be 30% for at least a year, so it might be a good investment, as long as you sell out before growth slows down further.
The growth rate is NOT expected, by me or the Street, to slow down to 20%. My personal opinion is that the growth rate is set to accelerate, probably starting next year. The resulting higher growth will continue for a number of years before slowing down to sustainable “high” rates.
To put some meat behind my opinion, I will post an analysis under the title “HyperGrowth”.
Allen |
