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Strategies & Market Trends : Piffer OT - And Other Assorted Nuts -- Ignore unavailable to you. Want to Upgrade?

To: Jorj X Mckie who wrote (62130)	12/20/2000 11:30:11 AM
From: Doppler	Read Replies (2) \| Respond to of 63513

Ok. Here is a question on valuations. Lets say you have a stock that is not a new issue, but an established well know company that had huge run a few years ago. Now it is up ANOTHER 1000% in 4 yrs. What do you think would be a fair price two years from now. (I know you don't know specifics of growth rates etc, but just bear with me). Would you be happy with double the historical stock return average?. In other words- 25% a year. Now say the stock was at 10 after this MONSTER run though 2 yrs ago. 10 times 1.25 is 12 1/2. Times another 25% is 15 and 5/8. Would you be happy with that in 2 yrs? Well the hypothetical stock is CSCO and I am posing that Q in 1998. People would have been giddy over a $15 stock price in 2000. Expectations have gotten way out of hand. I'm not picking on CSCO. There are many other worse examples. Put it another way. Take CSCO, or INTC, or any stock. Multiply it's earnings growth rate by it's stock price back when you are starting the exercise. ie- take 50% for CSCO (or whatever it has been since 1994 or whenever) and multiply it each yr by the stock price from when you started. You will come up with projected valuations that are a mere fraction of what prices are e today even after the correction. Plus remember that doesn't even account for any slowdown in earnings from here (like we are seeing).