Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Tlac who wrote (31476)	6/2/1999 7:15:00 AM
From: JohnG	Read Replies (2) \| Respond to of 152472

Kelly-Real Q question not earnings growth but Whether they are capable of reinvesting these earnings in projects having a high return on equity. I am sure Jacobs realizes this too. Isn't the Q royalty stream comparable to some kind of magic CD for which the principle magically gets bigger and bigger--thus giving the Q wads of cash to dispose of as long as the patents hold up. If we accept that Q will have this ever increasing cash inflow as some significant and probably increasing portion of their earnings, then the question is what they will do with it. Truly great companies earn a high return on equity and are able to reinvest earnings in the company's new projects which also earn a high return on equity. Doing this allows the "tax free compounding" which has made Warren Buffet wealthy. Not-so-great companies either 1) piss away their earnings on looser projects or 2) declare dividends(taxable and thus no tax free compounding. The former kind of company deserves a much higher multiple than the latter. If the Q achieves a high earnings growth rate, that is great, but earnings growth rate alone should not result in a the market giving the Q a large P/E multiple. If it is just a dividend machine, then the royalty part of the business should only have a multiple of maybe 10 or 12.