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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (28252)	4/24/1999 12:46:00 PM
From: Feathered Propeller	Respond to of 152472

>" ... lower bond yields increase the principal value of the bond EXPONENTIALLY, not LINEARLY..." FWIW, that is true only to the extent that value is an inverse function of the differential of time to maturity and nominal rate, given a regression of the prescient yield curve, and then only if the F and T statistic are both positive in relation to that inverse function. (refer Beumann or Molodovsky, I'm not sure which).

To: Jim Willie CB who wrote (28252)	4/24/1999 1:35:00 PM
From: Art Bechhoefer	Respond to of 152472

I think the question of whether an earnings growth rate of 50% justifies a substantially higher PE can be answered more easily by looking at the expected return on investment compared with other securities. At some point, even investors who don't crunch the numbers can realize intuitively that some other stock will be better. In the past, when dividends were more popular, investors could compare yield. Today, when capital gains are favored, for tax reasons if nothing else, one has to look at return on investment more as the likelihood of building wealth. This broader measure requires not just looking at the PE and the growth rate but at the intrinsic value of the company, including traditional book value, adjusted for the usually unreported assets, such as patents. There is, in my view, no formula that will allow one to calculate how much higher the PE should be in comparison with earnings growth. What I do know, however, is that if one compares a stock like QCOM with AOL, it is clear that QCOM is relatively undervalued and AOL is overvalued, and not just because AOL has a PE ratio about 10 times higher.

To: Jim Willie CB who wrote (28252)	4/24/1999 2:14:00 PM
From: Ramsey Su	Respond to of 152472

Jim, I think the common believe of the PE/growth rule of thumb is that PE should not exceed growth rate. Of course, under the new investment paradigm, what are PE or growth rates anyway? Does it have a .com behind it? You are absolutely correct in considering the pricing dynamics of bonds. Just think, if PE=growth rate is the magic formula, are we saying that bonds yielding 10%, 20% and 30% should all be sold at par? Who would be so stupid to buy the 10% bond? Jon raised the other legitimate point earlier which was exactly what I was trying to say. Message 9117940 Very very few stocks can grow at 30% indefinitely. Further more, many may erroneously use earnings growth as the indicator. Remember top line growth is far more important than bottom line growth in this type of analysis. Earnings growth can be the result of cost cutting or better management, which is not "growth" at all. Part of QC's earnings growth actually falls in this category. The problem remains with projections. Linearly or exponentially, they are equally fallible because you would be trying to apply a mathematical formula to a dynamic chain of events. Sounds like we are in agreement that at least some type of premium should be added to the PE of companies with high growth rates. The question is how much? I opine that we should value the quality of this growth rate. At 25% compounded, the company in theory doubles in value every 2.88 years, using the rule of 72. If we believe that the company is in an accelerating mode, then this growth may not only be sustainable but exceeded. Using these assumptions, we have enough data to project value using a simple cash flow analysis model based on what ever level of optimism or pessimism of each individual investor. In the case of QC, the revenue growth should be sustainable at an very attractive rate of, say 25% or higher, for the foreseeable future. The value one is willing to pay depends on ones' investment return objective. If a mutual fund manager is satisfied with a 10-15% ROT, I think they will find QC grossly undervalued at the current price. Afterall, it is nothing more than a present value calculation of a cash flow serious going out a number of years. Ranting again. Got to lay off that NZ sherry so early. Ramsey