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Technology Stocks : THQ,Inc. (THQI) -- Ignore unavailable to you. Want to Upgrade?

To: Todd D. Wiener who wrote (10068)	3/1/1999 2:07:00 AM
From: Quad Sevens	Read Replies (3) \| Respond to of 14266

Todd: Consider a hypothetical company whose earnings, with certainty, will be flat the next 30 years. Also assume this co. will pay out all of its earnings as dividends. The company's stock is then equivalent to the U.S. long bond, which now yields 5.55%. The company should therefore sell at a PE of 18--even though there is zero growth in earnings.

To: Todd D. Wiener who wrote (10068)	3/1/1999 2:57:00 PM
From: Sword	Respond to of 14266

Todd: I love your analysis. It makes perfect sense. I just loaded up on THQI again (between 19 11/16 and 20) after being mostly flat for quite some time. (I still had about 1000 shares tucked away.) What an opportunity! I've put THQI on my favorite stocks list again and it's #1. By the way, welcome back. I missed you during your long absence! Regards, -Sword

To: Todd D. Wiener who wrote (10068)	3/1/1999 7:13:00 PM
From: Quad Sevens	Read Replies (1) \| Respond to of 14266

OT (but essential, LOL) Todd: the 8 year period is rather arbitrary, isn't it? Why use 8? But OK, using your 8 year period, let's assume one dollar a year in earnings in 1998. Below is the sum of earnings over the next 8 years for various growth rates. 1% 8.37 5% 10.03 10% 12.58 15% 15.79 20% 19.80 25% 24.80 30% 31.01 40% 48.15 50% 73.89 60% 111.87 70% 166.98 80% 245.70 90% 356.43 100% 510.00 150% 2541.46 As you can see, the PE = growth rate formula is pretty good from about 15% to 30%. It underestimates a current fair value PE for small growth rates (I was looking at zero growth in an earlier post, where it fails badly). It badly underestimates for high growth rates. (These results give some insight, BTW, into internet valuations. Not as wacky as some think--if such a growth rate can be maintained. And if there actually is an E at some point.) Wade PS: The formula x + x^2 + x^3 + ... + x^n = x(x^n - 1)/(x - 1) is useful for these calculations. For example, for 20% growth over 8 years, you would use x = 1.2 and n = 8.