Hi Indian. Here is how I calculate the 3 to 5 year projected growth rate. Most of the time my calculations are ahead of the curve. On occasion, they can be too optimistic as is the case with Apple currently. Whenever my calculation is 10% greater than the consensus, I tend to go with the consensus.
OK, first some history. When I calculated DECK in 2011 all the growth factors I used where smaller numbers than there are now. You will see later that ALL the growth factors have GROWN substantially when compared to the past. A great sign indeed.
5yr Book value growth: 28.88% 5yr EPS(historical): 37.27% 5yr Cash Flow: 37.78% 5yr Revenue growth: 30.47%
I then multiply them and get= 1,239,056.155
Then y to the x(.25)you get 33.36%
I then subtract 5% (as entropic decay)
You get 28.36%
I then use a multiplier of anywhere from .3 to .5
In this case I used .5 [28.36% x .5] to get 14.18%
Finally I add back in 5% and end up at 19.18%
The multiplier makes all the difference. If I'm seeing growth rates over 25% I will be conservative and use .4 to .3
OK, Here are the latest numbers as of 4/2/2012:
5yr Book value growth: 31.13% 5yr EPS : 44.92% 5yr Cash flow growth : 46.59% 5yr Revenue growth : 35.24%
using .5 = 21.96% using .4 = 18.57% using .3 = 15.17%
As you can see, using .5 seems reasonable in this case. Even if I used the most conservative estimated of 15.17%, DECK is still a screaming value given it's current price.
btw, You may be wondering how and why I came up with this method.
It was derived primarily to be used on stocks with no or very few analysts following them. My business colleague actually developed the idea and we have used and refined it for the past 8 years for stocks in the portfolios we manage. His background is in physics and math so it helps tremendously that he doesn't come from the typical MBA type of thinking.
The second reason for doing your own projected growth rates is to get more stable projections. Analysts are very jumpy as I'm sure you are aware. Using our own projections allows us to get rid of the short term noise that the analysts create.
Wow, thanks Jaques. Definitely doing your homework. I appreciate the effor. The numbers look good. It really is just "noise". Some of the arguements from the negative people on this board have nothing to dow ith numbers; an arguement that it isn't "sold out" when last year it was "sold out". lol. I have to laugh as this is not the way to quantify a business or the demand for the product. Hard numbers quantify it. Well, thats the market. Thanks again.