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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: Petz who wrote (28737)	2/24/1998 10:43:00 AM
From: Reginald Middleton	Read Replies (3) \| Respond to of 1572763

<In the case of AMD, the discounted value of future cash flows is basically unknowable, because the future production is not knowable.> That is the problem with any number of forecasting methods, you have to forecast. I am fully sympathetic to the weaknesses abound in forecasting terminal values and growth rates, but it is absolutely unavoidable for the practitioner is trying to ascertain future values and barring the use of a crystal ball, guessing is the only way to do it. What makes me so bearish on AMD is the fact that my model gives a plethora of sensitivity scenarios to counter the risk of being off in my guesstimates. Under 8 out of ten scenarios, AMD is still no where near $45 per share. There is a LOT of growth and risk reduction that needs to occur before this happens. Now this is not to say that AMD may not hit that price, but it will be unlikely that it will remain there if ti arrives. There are many more promising growth vehicles in which to place ones capital. IMO, valuation is not an exact science, but like the social sciences, it is still a science. <Thats because it doesn't matter what the stock is really worth -- who cares? What will the market think its worth?> Over time (a reasonable horizon) the market and the intrinsic value will converge. As for the web site, I simply posted data that exemplifies how the model works using constant growth. When I get the time, I will use a more realistic set of assumptions (read spend more time) on the AMD valuation. I will email you or post to the thread when I get it done. <Thats because it doesn't matter what the stock is really worth -- who cares? What will the market think its worth? That is the basis of contrary opinion. When publicity is concentrating on the negatives, the probability is that the "market overall" will not become even more negative on the stock.> You have to remember the noise injected in to the market by things such as non-investment related trading volatility, etc. For instance, a contrarian methodology for NOVL or NSCP would have been unprofitable indeed. What I propose is to estimate future cash flows as accurately as possible and use the historical trend as a proxy for terminal valuation. This would have warned the investor of both NSCP and NOVL (both had a significant down trend in cash flows due to MSFT), and thier trending P/EBITDA were obvious. Thank you for the positive comments. RCM rcmfinancial.com