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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: LindyBill who wrote (2060)	5/20/1999 10:11:00 PM
From: Mike Buckley	Read Replies (3) \| Respond to of 54805

Lindy, According to First Call, Using 5 year estimates from 9 Analysts: Growth Rate QCOM..........35% According to Zacks: Next 5 years - Median 31.88 Number of Brokers 13 Next 5 years - High 45.00 Next 5 years - Low 20.00 For comparison purposes, QCOM's average growth rate during the last five years is 32.1%. According to Zack's: Last 5 years actual is 53.4%. Zack's excludes one-time accounting events, and that might exlpain why their five-year historic rate is so much higher than First Call's rate. PEG QCOM..........1.35 The PEG is meaningless unless you know exactly how it is calculated. The estimated growth in the ratio varies from PEG to PEG as does the PE. Is it a PE based on the trailing earnings or is it based on FY99 estimated earnings or what? I don't remember what First Call uses as the components of the ratio so I'm no help there. On May 14, Zack's uses a forward PE based on FY99 estimates divided by the estimated five-year growth rate of 31.88%, yielding a PEG ratioa of 1.88. The PEG ratio I prefer is the Motley Fool's ratio, called the Fool Ratio. It uses a trailing PE (excluding one-time charges) and the annualized growth rate from now to the farthest earnings estimate. Using that scenario, the PE (87) divided by the growth rate (52%) results in a PEG of 1.67. However, that's a Fool Ratio using published estimates for FY2000 which I believe are ridiculously low. The pro forma run-rate is $4.80 yet the FY2000 estimates are still half that. Assuming no growth whatsoever by using the pro-forma run rate, the Fool Ratio becomes PE (87) divided by growth (106) resulting in a PEG of 0.82. That too is a little misleading if taken out of context. No one expects the growth to be at 100% forever, but it is a realistic annual growth rate over the next 6 quarters and in my mind justifies a mich higher current price of the stock. The reason I like the Fool Ratio best is because it doesn't use estimated five-year growth rates which are notoriously unreliable. (Do you know what you will be doing in five years, much less what the company will be doing in five years?) Also, using an historic PE ensures that at least part of the ratio is based on fact rather than a crystal ball. Lastly, by using the farthest annual estimate which will be as little as five quarters out or no more than 8 quarters out, there is more credibility in the estimates. (Indeed, if there are five or fewer quarters to go to achieve the estimates, the growth can be skewed. In an ideal world, I prefer basing estimated growth on the next 6 to 8 quarters.) I realize your question and my response is analagous to asking for the time and getting a manual on how to build the watch. What else did you expect from a valuation junkie? :) --Mike Buckley