Formerly About Applied Materials Message Board

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Politics : Formerly About Applied Materials

AMAT 254.72

+0.9%

Dec 1 3:59 PM EST

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To: Proud_Infidel who wrote (30595)	5/25/1999 10:01:00 PM
From: Sun Tzu	Read Replies (2) of 70976

>> ...$1000 stock/bond is worth a cool 2,199,761.30...If you paid $5000 for said stock, it would take 20 years before the earnings stream would actually "catch-up" Actually, you are severly underestimating the value of the investment. Say the company is making $1 today and is growing it at 8% per year. In 100 years, it will be making $2,199.76. BUT, to properly discount this 100 years' worth of earnings, you need to invest all the previous earnings and compound them at 8% for the remainder to 100 years. Then you can use your estimates of inflation over the next 100 years to discount the sum back to present and get the fair value of the stock. For example, the $2,199.76 earnings that the company will make in 100 years is worth $114.46 today (at 3% inflation). Do the same for all its other earnings and add them up to the net assets of the company and you'll get its present day value (it should be something around $5500). Hence we can justify a PE of 5500 for a company that is growing at 8%! Sun "I fear for my life as I just revealed the biggest secret of the sell side analysts" Tzu

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