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Non-Tech : Any info about Iomega (IOM)? -- Ignore unavailable to you. Want to Upgrade?

To: Bill Fischofer who wrote (52997)	4/18/1998 12:31:00 PM
From: RetiredNow	Read Replies (4) \| Respond to of 58324

Yes, it is interesting. If you take the estimated PE of 12.84 times the FY 98 est. EPS of .34, you get $4.37 share price. But I forgot, PE doesn't matter. BTW, for those of you who didn't know, analysts sometimes use a PE equal to anticipated growth rates because of a formula for calculating share price. That formula is EPS Price = -------- r - g EPS = next year's estimated EPS r = opportunity cost of capital g = anticipated growth rate formula also assumes that company will exist in perpetuity. So applying the formula we get: EPS = current estimates are about $.20 r = let's use 15% to give IOM the benfit of the doubt (usually it's a lot higher g = since this is a perpetuity growth rate, let's use 8% (once again giving them the benefit of the doubt) so we get: Price = current fair value = .2/(.15-.08) = $2.85 per share let's be even more optimistic: EPS = $.35 r = 15% g = 10% Price = .35/(.15-.10) = $7 (which is what it's priced at now, coincidentally) Anyway, to sum up, analysts oftentimes use growth rates for PE, because they are thinking this approximates 1/(r-g). In the above case, 1/(r-g)= 20. So using 20, we could get anywhere from $2.85 to $7 depending on what the consensus of all investors is. I hope this helps some of you, when you think about how to derive fair value for a stock. Good luck investing!