The whole approach to Fundamental analysis isn't about being right. You're not trying to pin 2020 earnings to the penny with 100% accuracy. Its all about understanding how much potential a company still has in the future. That way you can own it with confidence.
If you ever want to see the whole thing without all the Yahoo forced editing I could send you a copy.
Finally! the second part posted without being deleted you can read the rest of it now. It is so dumb how posts get deleted for the simplest things.
Smart phones are expected to reach 2 Billion units by 2020. The next thing we need to know is what market share SWKS has in smart phones (I do this by searching their market share on a search engine). Samsung accounts for 25%, Apple 12% and Xiaomi has 5%. These are the companies we know SWKS has parts in which gives them 42% total smart phone market share. We take 2B smart phone and times it by .47 to get how many units SWKS will sell. This gives us 840 Million units for SWKS. The cost of each unit for SWKS is projected to be $15 to $17 (Presented by SWKS at their June call) 840 million units * $15 (to be conservative) and you get 12.6B in revenues for SWKS by 2020. SWKS has a net income margin of 21% (I calculated this from the 10Q). Net income is what is used to calculate EPS. If we take that $12.6B in Revenues * .21 we get 2,646,000,000 in net income. SWKS has 191.1 million shares outstanding. Net income of 2.9B dividend by shares outstanding get us to 2,961,000,000 / 191,100,000 = $13.84 in EPS for 2020.
Fundamental Analysis is about predicting the future. It is not enough to know that a company will grow over the next few years. We need to know by how much so that we feel comfortable in buying long term. When trying to build a picture of future earnings, we have to ask some very important questions. I will use SWKS as an example again since we are all familiar with it. Important questions to determine 2020 earnings would be as follows.
1. How many Smart Phones will be sold in 2020?
2. What percentage of Smart Phones will be 4G or LTE phones?
3. How much content will SWKS have in each phone?
4. What percent of market share does SWKS have?
5. What profit margin does SWKS make on each dollar of revenue.
Some of these questions can be easily answered by searching them. Others, like the content value, will have to come from the company itself. Once we have these answers we can build a model for earnings in smart phones. This portion only applies to smart phones but we can do this with all parts of the business like Automotive.
Now we are ready to move to the next stage and put these answers into a model that will allow us to predict 2020 Revenues and to some point Earnings. I say to some point on earnings because of stock dilution from stock rewards and reduction from buybacks. We can be 100% sure what the share count will be in 2020.
I will post it in a few its almost done. I will put in all in one thread for you and I will break it into sections by posting replies to myself since it wont all fit in one.
I will make some posts just for you that are a thorough as possible. I sometimes jump right into things and assume many know much of the stuff I consider a given. I am a good fundamental and valuation guy, but maybe not the best teacher lol. I will post them directly to you so you wont miss them.
We already know that SWKS has $10 of content today in LTE phones. By analysis of their newest module the SkyOne. Most analysts put it at $12 - $14 in possible content. That is why I used Apple and Samsung market shares only because we know those 2 use these high end modules.
I see you posted on the Technical and Fundamental posts. You found those 2. The valuation one is here somewhere too.
That is way too technical for me lol. I am a Fundamental and Valuation guy. I just like to watch the generic MACD and RSI to see when a stock has pulled back enough to buy some.
That is very interesting Dilbert because I do use Yahoo Charts and they have many things people don't state here like the shaded area on the RSI. Maybe it has to do with my version of browser. I never thought of that. I am using Internet Explorer 11 on my trading laptop.
Sorry Cheetah. I was referring to this Yahoo form for SWKS. The one we are posting on now. I posted 4 threads and last I looked they are all on the top page yet. They are tilted
Teaching Fundamental Analysis
Teach Valuation Analysis
Teach Basic Technicals
That is True. I usually buy SWKS when it gets down to 40 ish. That is where I bought it this week. Getting to know a stock by owning or following it over time, that is were the best insight is.
I am sure they see the same market I do. At their June conference they stated they saw a 10B market opportunity by 2018. That is far ahead of even my expectation. They only go out 3 years because that is want they can see for some certainty. I bet you they project out 5 years just like I do. Their just not telling people about it.
I think they will continue to gain market share. Their tech is like no other. Their advantage is that they can take multiple complex technologies and put them all together in one package to solve their customers problems. The addition of Quantance will make them even stronger. David Aldrich is the sharpest in the business. He is make only acquisitions that are necessary and beneficial. He isn't going to just buy something to try to impress people.
All 3 are on SWK's forums. The are titled just the same as they are listed in this post so you can search them quickly.