Cramer's Being Reckless About Netflix [View article]
Regardless of the market, increasing the customer base from 17 million to 50 million itself is a big deal. Analysts predict a long term growth rate of 28% for NFLX and analysts are known to be over optimistic in long term forecasts. If they do hit 50 million, I am sure that several million of those 50 million will be from outside the US/Canada.
I really doubt that 1 in every 6 Americans will be a netflix subscriber. Rather, I would not invest in a company that is currently valued based on the assumption that 1 in every 6 Americans will be using its service.
Cramer's Being Reckless About Netflix [View article]
Why would the stock be trading at a P/E of 25 when it is near the end of its high growth period? If the company has 50 million subscribers, I would have to assume that the company is a mature company without significant avenues for growth (at least the North American markets). Google finance description of the company states that the NFLX has 12 million subscribers. So, at 50 million, you are talking abt a four fold growth.
For a mature company, the valuation would not be greater than 15 times earning. Using your numbers (which I dont agree with to begin with), that translates into a market cap of 9 Billion. The current market cap is 9.24 Billion. So the stock is already overvalued even by your estimates. This does not even account for the discount rate. Assuming a very conservative discount rate of 8%, and a very aggressive high growth period of 5 years (i.e time taken by NFLX to reach 50 million subscribers), the current market cap should be about $6 Billion. The corresponding share price is $117.
Cramer's Being Reckless About Netflix [View article]
That was one good article. I completely agree with you on NFLX. I like the company and would probably not short it, but its simply way to expensive at these levels. A P/E closer to 40 might be the upper limit in my book.
Railroad Stocks: Determining Fair Value [View article]
I did look at CSX (and UNP for that matter) as part of my relative valuation. I wanted to restrict myself to 3 companies and therefore, I had to drop CSX and UNP from the list . In case you are wondering, according to my model the fair value of CSX and UNP is $60.11 and $84.33, respectively. So, I dont think you paid too much, you just dint get a bargain. You should be fine in the long run.
Hansen Natural Looks Ripe for a Takeover [View article]
I agree. I would not be buying HANS at these levels. I waited patiently for a long time before buying it. In fact, I ended up waiting more than I had to. Could have bought it at 21 during the peak of the crash. But ended up buying it on the way up at about 27-28.
The way I look at it, for a company such as HANS, I would want an annual return of at least 20%. With my price target of $58, I would only buy the stock if it traded below $48. Since I already own HANS, i would require a greater return potential than 20%. In this particular case, i would look to add to my position if the stock falls to $45 which would imply a total return of 25%.
Analyzing Major Big Pharma Players Using Relative Valuation [View article]
I agree with you. Of the companies that I presented above, MRK is my favorite followed by NVS and ABT. This is just based on product mix and not on valuation.
Analyzing Major Big Pharma Players Using Relative Valuation [View article]
Additionally, the long term growth rate (shown in Table 1) also provides some basic idea of new products and patent expirations. LLY for example has the most patent expirations in the next 4-5 years which is why it growth rate is negative.
Analyzing Major Big Pharma Players Using Relative Valuation [View article]
Good question actually. Well, the pipeline was considered while shortlisting the companies. I also looked at patent expirations. Please note that RV is the 1st stage of my analysis, which is why I did not provide a price target as I usually do in my articles. I plan on performing discounted cash flow analysis which will dwell deeper into the pipelines, patent expirations, product mix, and R&D expenses.
Why Microsoft Should Buy Research In Motion [View article]
If MSFT ever tried to acquire RIMM, I am positive that deal wont be for anything less than 100% premium. RIMM currently has abt $2 Billion in cash. In unlikely scenario that a deal does go through, it will be in excess of $50 Billion. MSFT will probably have to resort to issuing new debt and risk its AAA rating.
Which is why, for a firm as big as Cisco or MSFT for that matter, i like buying them at low prices and flipping them in the next 12 to 18 months. I dont believe any of these companies make great additions to my long term portfolio. In the short term however, it is possible to profit from the mis-pricing of Mr Market
Dell, i havent looked at closely. I will hopefully research that company and perform a valuation analysis in the upcoming days.
The share count has dropped from 7.2 Billion to 5.6 Billion. Thats a terrible drop in my opinion. Your point is well taken. I have never been a fan of stock buybacks as a way of paying the investors. This is especially true with mature companies. Let me have the money and spend it the way I want.
Going Defensive With Johnson & Johnson [View article]
Another point I would like to make about R&D expenses. Going by theory, by expensing R&D, you are implying that R&D spending only provides benefit during the current period. However, usually thats not the case. Most companies to the contrary derive benefits from R&D spending in future years.
On the other hand, capital expenditures are expenses which typically provide benefits over multiple time periods. For companies such as biotech and technology firms which do not really require lot of conventional capex, the R&D expense is the only way they can fund their future growth and operations (organically of course).
Therefore, regardless of the impact on operating income, for companies with significant R&D expenses, I believe that capitalizing them is the right thing to do.
Going Defensive With Johnson & Johnson [View article]
This what happens if you try to post a quick reply while being extremely busy at work. You are right, capitalizing R&D adds to the assets on the balance sheet. The net effect on operating income depends on whether the amortization of the research asset is greater than the R&D expense in the current year.
For high growth firms, typically the R&D expense is greater than the amortization leading to an increase in operating income. but for mature firms, with relatively stable R&D expense, the operating income can actually decrease. Such is the case with JNJ. Without capitalizing the R&D expense, the value of JNJ stock increases.
Cramer's Being Reckless About Netflix [View article]
I really doubt that 1 in every 6 Americans will be a netflix subscriber. Rather, I would not invest in a company that is currently valued based on the assumption that 1 in every 6 Americans will be using its service.
Cramer's Being Reckless About Netflix [View article]
For a mature company, the valuation would not be greater than 15 times earning. Using your numbers (which I dont agree with to begin with), that translates into a market cap of 9 Billion. The current market cap is 9.24 Billion. So the stock is already overvalued even by your estimates. This does not even account for the discount rate. Assuming a very conservative discount rate of 8%, and a very aggressive high growth period of 5 years (i.e time taken by NFLX to reach 50 million subscribers), the current market cap should be about $6 Billion. The corresponding share price is $117.
Cramer's Being Reckless About Netflix [View article]
Railroad Stocks: Determining Fair Value [View article]
Hansen Natural Looks Ripe for a Takeover [View article]
The way I look at it, for a company such as HANS, I would want an annual return of at least 20%. With my price target of $58, I would only buy the stock if it traded below $48. Since I already own HANS, i would require a greater return potential than 20%. In this particular case, i would look to add to my position if the stock falls to $45 which would imply a total return of 25%.
Analyzing Major Big Pharma Players Using Relative Valuation [View article]
Analyzing Major Big Pharma Players Using Relative Valuation [View article]
Analyzing Major Big Pharma Players Using Relative Valuation [View article]
Analyzing Major Big Pharma Players Using Relative Valuation [View article]
Intel: Trading at a Discount [View article]
Why Microsoft Should Buy Research In Motion [View article]
Cisco: Almost a Compelling Buy [View article]
Dell, i havent looked at closely. I will hopefully research that company and perform a valuation analysis in the upcoming days.
Cisco: Almost a Compelling Buy [View article]
Going Defensive With Johnson & Johnson [View article]
On the other hand, capital expenditures are expenses which typically provide benefits over multiple time periods. For companies such as biotech and technology firms which do not really require lot of conventional capex, the R&D expense is the only way they can fund their future growth and operations (organically of course).
Therefore, regardless of the impact on operating income, for companies with significant R&D expenses, I believe that capitalizing them is the right thing to do.
Going Defensive With Johnson & Johnson [View article]
For high growth firms, typically the R&D expense is greater than the amortization leading to an increase in operating income. but for mature firms, with relatively stable R&D expense, the operating income can actually decrease. Such is the case with JNJ. Without capitalizing the R&D expense, the value of JNJ stock increases.