Also, suppose the revenue growth assumptions are not as lofty as those made in my previous post, but still rather impressive, say 50%. Under this assumption the valuation picture turns somewhat grim. For example, if revenue growth over the next four years only grew at an annual compounded rate of 50% it would place total revenue by the end of 2010 at $2373.625 million, or approximately $2.37 billion. Assuming it maintains those 15% profit margins, the implied net earnings would be approximately $355 million. If the Company issues no more shares total EPS would be about 1.06 by the end of 2010. Therefore, if you assume that the Company trades at, say, 30x earnings you are looking at a stock that should be worth approximately $31.87 in 2010. The stock currently trades at $99. In fact, even if you assume the stock trades at 50x earnings you are still looking at a stock that should be worth only approximately $53 dollars in 2010! In other words, the stock is ridiculously overpriced even given a rather favorable growth outlook.
However, please keep in mind that I am not saying the stock price will go down. For all I know the stock could triple within the next year. After all, Wall Street does have a tendency to inflate (and deflate) stock prices to irrational and exuberant levels. However, what I am saying is at the current valuation investors are implicitly stating that they expect revenues to grow at very high levels for a fairly long period of time. If these revenues do not materialize the stock price will eventually fall.
Angell