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  • jagad5 jagad5 Sep 9, 2011 12:15 PM Flag

    My analysis of ACOM

    I use a statistical model to forecast future revenues based on previously reported results, assume profit margins will continue as before and then estimate fair price using a formula developed by Ben Graham. For ACOM, I expect the next report to show:
    REV: $103M
    NET: $15M
    EPS: $.33

    My formula cranks out a 12 month price target of $120 and 24 months is $150. The company is currently growing revenues at a compounded annual rate of 30% over the last 36 months. But the current price reflects growth of about 10%. Net income grew even faster. And my model fits to account for 95% of the variability in the data, R^=.96 for you statisticians.

    Do I think it will actually hit my targets? No but if I get only half way there, I'll make 100%. I seriously doubt that the growing interest in genealogy is going to suddenly hit a brick wall as more and more data is constantly being added to the and other websites.


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    • that's garbage! and it has nothing to do with anything ben graham taught!

      • 2 Replies to impressiveinvestor
      • As with any model, the end result is only as good as the accuracy of the presumptions. I agree with you that $100-$150 in 1 year is unrealistic. However it is still a significantly undervalued stock, especially if one looks out 3-5 years. $100-$150 is quite reasonable over that time. Which is precisely why I am against any 'deal'.

        Thanks for sticking your neck out with a meaningful contribution. Its nice to see posts other than pom-pom waivers or school yard chumps hurling insults.

      • 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,
        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.


    • That IS complete garbage!

    • I think your analysis is dead on! ACOM is a great growth stock.

    • I have used BG's valuation formula for years,with some success.

      Note,however, that your conclusion is very dependent on two inputs:

      (a.)Projected EPS Growth Rate. You assume 30%, which seems pretty high going forward.Try a lower rate and see what happens.

      (b.) AAA Bond Rate. You use current rates, depressed by FRB partially for political reasons.Hard for me to see these rates as representative of a lynchpin for valuation during the next several years.A 50% rise in rates cuts PE by 33%,doesn't it?

      All the above having been said, if ACOM grows 15-20% annually for the next 4 or 5 years, the stock should do fine.

      • 2 Replies to bcwood_32963
      • my sense is similar to yours, bcwood.

        the supposed BG analysis has been almost refuted by the SP result since the post when ACOM was at $32+. Graham's margin of safety should have protected stock price from falling off a 50% cliff in three weeks.

        the assumed 30% growth rate seemed excessive and was fuel for the sell off. much too optimistic. long term rates are mostly not in control of the FED. LT interest is more about inflation expectations.

        on the other hand, 15%-20% over the next few years, by no means assured, should bring the stock back to $30, assuming no further multiple contraction. anything less will depress the ACOM multiple further and the stock price could flounder in the teens for many years.

      • a) The future growth rate is assumed, that's true, but 30% is the CAGR over the past 36 months. That's why I look at the growth rate implied by the current price. Solving Ben's formula for growth given the other inputs (some assumed) indicates that the price reflects a future growth rate of 10%. There's little to suggest that the company's growth will decelerate that much.

        b) If the economy ever gets back on its feet, the Fed will keep rates low for at least a year or two after that. Since I don't see the US being on the path to recovery for at least another 12 months, I'd say we have another 2-3 years of low interest rates. It will take a while for rates to go up 50%. The last time they were that high was 15 years ago.

        What do you think?


    • ACOM beat my forecast with solid growth in revenues (30% in line with performance over the last 12 quarters) and improved profit margins. Next quarter expect:
      REV: $108M
      NET: $19M
      EPS: $0.42
      R^2 = 0.97
      Fair value - a lot more than the current price. The current price reflects a growth rate of about 5% versus the 30% growth they have been providing.


      • 4 Replies to jagad5
      • Company performance is all within 5% statistical forecast. I'd like to see that reflected in the price. Next quarter, Expect:
        REV: 106M
        NET: 18.5M
        EPS: .40

        A PE of 18x trailing and predictable revenues. The low end of the company's range was 13-15% growth, that's subjective info, not actual fact yet. Dollar Tree is expected to grow 13-15% and it's trading for 24x trailing earnings.

        Current price and current performance aren't in sync.


      • good that you did not claim allegiance to ben graham this time. the stock is down 35% and falling since your 9/9 table pounding. don't think it would have qualified graham's margin of safety. you need > than a 50% bump just to break even.

    • Jefferies Maintains a 'Buy' on (ACOM); 3Q Results Inline, ST Price Tests to Yield Negative Net Adds in Q4

      More News related to ACOM
      Jefferies Maintains a 'Buy' on (ACOM); 3Q Results Inline, ST Price Tests to Yield Negative Net Adds in Q4 Adds More Than 50 Million New Birth, Marriage and Death Records Expanding the Largest Searchable U.S. Vital Records Collection to Nearly a Half Billion
      After-Hours Movers 10/26: (AKAM) (NSC) (CMRE) (SFSF) Higher; (TQNT) (MDR) (AXTI) (ESIO) Lower, Inc. (ACOM) Tops Q3 EPS by 5c; Guides Q4 Sales; Authorizes $50M Buyback Inc. Announces New $50 Million Share Repurchase Program
      More News related to ACOM
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      Needham & Company Reiterates a 'Buy' on LeCroy (LCRY); Good Start To FY On Stronger Revenues, EPS & Bookings
      Needham & Company Reiterates a 'Buy' on Itron (ITRI); Mixed 3Q Results With Some Good, Some Bad; Longer-Term Outlook Remains Healthy
      Jefferies Maintains a 'Hold' on SAP AG (SAP); Impressive Results and Smart Guide; But We Remain Patient
      Jefferies Maintains a 'Buy' on (ACOM); 3Q Results Inline, ST Price Tests to Yield Negative Net Adds in Q4
      More News related to Analyst Comments
      October 27, 2011 8:32 AM EDT

      Jefferies maintains a 'Buy' on (NASDAQ: ACOM) price target lowered from $43 to $35.

      Jefferies analyst says, "ACOM reported inline 3Q results, but the ST impact from price testing, weakness in individual markets (UK/Australia), and overall macro weakness caused mgmt to lower 4Q ending sub guidance (implying negative 10k net subs). We've adjusted our ests accordingly and are maintaining a Buy rating on 1) LT growth potential given leadership position in an emerging segment, 2) history of strong execution, and 3) attractive valuation."

    • >>>>>The research I did based on those questions reinforced my conclusion that the price will go up.<<<<<

      that statement is a major downgrade from your unrestrained enthusiasm for the stock last month when it was 50% higher.

      you have been dead wrong but can't bring yourself to say so. so now if the stock goes to $30 over the next year or two, you were right?


    • "you have been dead wrong but can't bring yourself to say so."

      On the contrary, my revenue forecast was within 1% of actual. The company's profit margin improved so EPS exceeded my prediction. When I can't predict the future revenues, I will say so.

      You claim to be a Ben Graham expert. Yet you seem to be completely ignorant of the fact that his philosophy relied upon an inefficient market. His objective was to find stocks selling for less than the inherent value of the underlying company. The stock's price indicates that future growth will be about 5%. The company has been consistently growing 30% for the last 12 quarters, actually accelerating.

      Each time you have questioned my understanding of Ben's methods, you have instead illustrated that you only choose facts that let you whine. I'm not whining. I'm buying a stock that has gone on sale. I will buy and hold until the company's performance is accurately reflected by the price. Either the stock will go up to reflect a company growing at something higher than 5% or revenues will stop growing at the consistent pace they have.

      If you would like to put forward a coherent explanation of your method we can continue this. If I have used incorrect inputs into my statistical model, I welcome feedback. Otherwise, I'll be ignoring your comments.

      Have a nice day.


    • >>>>You claim to be a Ben Graham expert<<<<<

      you lie. i am not and i have not so claimed.

      most importantly, this is about share price and you pumped this thing as a "$120 stock in 12 months, $150 in 24 months" stock on 9/9 when the stock price was $33. you need 50% increase to break even and a 6 bagger to meet your 12 month target. and that is no lie.

      let truth prevail.

    • "Do I think it will actually hit my targets? No but if I get only half way there, I'll make 100%."

      I can cherry pick to make my argument too. I won't be reading any more of your messages. Thanks.

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