Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: A.L. Reagan who wrote (70493)	4/13/2000 7:44:00 PM
From: Hashem Akbari	Read Replies (2) \| Respond to of 152472

There may be a bigger issue that affecting market; something to think about. The question of supply and demand imbalance. There used to be something called 'deficit,' running over $300b per year. The majority of that deficit was funded by citizens. That was a continuous supply of mainly long-term bonds. Now that source is dried up. The majority of the $ was coming from pension funds. But the $ is still available; with my crude estimate it is about $40B per month. If that $ chases the existing bonds, the bonds interest rate will come done and that would make stocks more attractive (we see the evidence of this through yield inversion). If the $ is directly invested in security market, that also drives the stock prices up. This is the current situation that we are in at this time. How this imbalance is going to be resolved over a long term? My guess (from observing historical data) is either inflation or recession. Both inflation and recession solve the imbalance, one by raising prices, the other by reducing the supply of money. On the short term, I do not see either a sign of inflation or a recession. Hence, I have to conclude over the intermediate horizon (3 mons to 1.5 years) the $ that left the market comes back to the market begging for even higher prices for equities. Hashem

To: A.L. Reagan who wrote (70493)	4/13/2000 10:50:00 PM
From: Stu R	Read Replies (3) \| Respond to of 152472

I enjoyed your post on pe ratios and valuation. It made me curious to plug in my own growth assumptions to your model. However, I'm not sure I'm doing your model correctly since it gives me an answer of about $86. After 10 years I came up with $23.25 of eps and multiplied it by 15 giving me $349. I took the present value at 15% discount 10 years annual compounding. Where did I go wrong? Thanks in advance, Stu

To: A.L. Reagan who wrote (70493)	4/15/2000 2:27:00 PM
From: sriudupa	Respond to of 152472

Here is an example math exercise. Assume you have a company that earns $1 per share now, has a 50% annually compounded growth rate for the next five years, 25% for the following five years, and a terminal value at the end of year 10 of a good old-fashioned 15x trailing earnings. If your risk adjusted cost of capital was 15%, how much would you pay for this? Answer: right around $122-$127 (depending on annual vs. quarterly compounding.) According to my calculation it comes to $86. Please check my number and tell me if I am wrong. $1 growing at 50% for first five years and at 25% for the next 5 years will be $23.16 at the end of 10 years.With a PE of 15 the terminal value will be $347.44. Discounted at 15% for 10 years, present value is $86. Am I right?