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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: flint who wrote (3309)	4/27/2001 11:17:25 AM
From: Stock Farmer	Read Replies (1) \| Respond to of 74559

FLINT - "Whats sad is all the longs will insists their particular stock will meet growth by stealing customers from the other companies in a price war" Got me to thinking to explore relationships between market share, growth of market and revenue growth. Maximum growth "G" of a company's revenue in a year is less than what it can achieve by eliminating all competition, and then benefitting from all market growth. As an equation: G < (1-x)/x + (1/x)*M Where "x" is the market share of the company, and "M" is the growth in market. Left hand term assumes a company can grow to monopoly, right hand term assumes that the company benefits from all increases in market share. A little bit of algebra: The maximum market share of a company to achieve one year growth rate G in market growing at rate M is: x < (1+M)/(1+G) Alternately, when the market is known to be growing at rate M and the company commands share x, then the maximum G that can be assumed in the stock price is G < (1 + M - x)/x Now, these are limits which assume the company can grow to 100% market share. And that all growth occurs in one year. If we take a mature healthy marketplace and a longer view, the first term vanishes and we are left with G < M / x Companies like Microsoft for example, where x is 1 for all intents and purposes can only grow as fast as the market. Companies like JNPR where x is 0.15 can grow 7x as fast as its market. No conclusions, just contemplations. John.