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Ancestry.com Inc. Message Board

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  • jagad5 jagad5 Sep 21, 2011 12:45 PM Flag

    My analysis of ACOM

    What precisely is contrary to Graham? I rely on fundamental analysis of revenue and profits to estimate future revenues and EPS.

    My original source for Ben's formula is:

    "The Smart Crash of October 19th" by Arbel, et.al.
    Harvard Business Review, May/June 1988, Vol. 66 Issue 3, p124-136

    The authors studied the behavior of stock prices on 10/19/87 and used a formula of Ben's to estimate how much stocks were worth. That formula is
    Value = EPS * (8.5 + 2 growth rate) 4.4/Yaaa

    You can find an entire entry on this formula on Wikipedia which cites the 1962 edition of his Security Analysis.

    Assuming growth rate is 10% and Yaaa (AAA bond yields) about 3.7% (based on the median of all AAA bonds in the Yahoo search engine) implies a fair PE of 34.

    Ancestry's current price reflects a future growth rate of 7.7%. Compare this against it's historical revenue growth rate of 30% and you might understand my optimism. This 30% is the CAGR over the last 36 months, which is higher than the 24% CAGR if I extend that to 48 months. In other words, company growth appears to be accelerating. I suspect this is due to a slow down when the economy tanked, making for better comparisons from summer '08 to summer '11.

    Jag

 

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