<% ' AvantGo:MarketClose %>DJIA 9159.55 +103.50 (+1.14%) S&P 500 1163.55 +10.94 (+0.95%) Nasdaq 1928.21 +8.53 (+0.44%) Value Line ndx 891.87 +4.00 (+0.45%) 30-Year Bond 100 16/32 +10/32 5.22% Yield<% ' AvantGo:End %>
<% ' AvantGo:Heroes %>Continued optimism about the recovery of the semiconductor industry pushed several stocks higher today. "We believe that this may be the bottom of the cycle and that business conditions are beginning to improve," said PRI Automation <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRIA)") else Response.Write("(Nasdaq: PRIA)") end if %> CEO Mitch Tyson. The automated chip fabrication systems developer's stock jumped $2 13/16 to $23 3/16 despite reporting a fiscal Q4 loss of $0.20 per share (before charges), down from a profit of $0.34 per share last year and below the market's projected loss of $0.10 per share. Also helping was a report in an industry publication that said October's book-to-bill ratio, a measure of demand for chip making equipment that weighs new orders against shipments, increased to 0.73 from 0.56 in September. Among today's movers were Integrated Process Equipment <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IPEC)") else Response.Write("(Nasdaq: IPEC)") end if %>, which won $3/8 to $11 1/4; SpeedFam International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SFAM)") else Response.Write("(Nasdaq: SFAM)") end if %>, speeding up $1 15/16 to $16 13/16; and Applied Materials <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMAT)") else Response.Write("(Nasdaq: AMAT)") end if %>, taking on $1 5/16 to $39 5/16. All three earned ratings upgrades today. Meanwhile, ASM Lithography <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASMLF)") else Response.Write("(Nasdaq: ASMLF)") end if %> moved up $1 1/8 to $28 3/4, and ETEC Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ETEC)") else Response.Write("(Nasdaq: ETEC)") end if %> rose $2 5/8 to $30 11/16.
Computer and office automation supplies distributor Miami Computer Supply <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCSC)") else Response.Write("(Nasdaq: MCSC)") end if %> had plenty of good news to jump-start its stock $4 9/16 to $24 15/16 today, but a nod from Business Week's infamous "Inside Wall Street" column probably didn't hurt. Lynch, Jones & Ryan managing director Elliott Schlang told the weekly rag he expects the company's stock to hit $32 per share in a year. Miami Computer announced that it will buy two privately owned companies -- computer supplies distributor Dreher Business Products and J.O.S. Projection Systems, a California audio-visual presentation products distributor. Terms of the purchases were not reported. Miami Computer, which announced an agreement to buy Canadian computer supply distributor Axidata earlier this week, expects more than $500 million in annual revenues after the deals are closed.
QUICK TAKES: Auto making giant DaimlerChrysler AG <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DCX)") else Response.Write("(NYSE: DCX)") end if %> motored ahead $3 1/2 to $91 5/8 following Credit Suisse First Boston's initiation of the company with a "buy" rating... Diversified consumer and business services company Cendant <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CD)") else Response.Write("(NYSE: CD)") end if %> grabbed $9/16 to $15 after it said it will sell its software business to Havas SA, France's biggest publisher (majority owned by the world's largest water utility, Vivendi SA), for up to $1 billion in cash. For more information, head to this morning's Breakfast with the Fool... FDX Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDX)") else Response.Write("(NYSE: FDX)") end if %> delivered $1 7/8 to $60 11/16 after the pilots union at the company's Federal Express unit moved to call off a strike vote, effectively eliminating the possibility of disrupting the company's operations during the busy holiday season.
Mesaba Airlines parent Mesaba Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MAIR)") else Response.Write("(Nasdaq: MAIR)") end if %> rose $1 3/4 to $17 1/4 after it announced plans to buy back up to $30 million of its common stock through December 1999... Financial stocks moved ahead once again today following this week's news of a third interest rate cut and second discount rate cut since September. American Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXP)") else Response.Write("(NYSE: AXP)") end if %> gained $3 3/16 to $104 9/16, while investment bank, brokerage, and Discover card issuer Morgan Stanley Dean Witter <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MWD)") else Response.Write("(NYSE: MWD)") end if %> added $4 to $70 9/16. For a closer look at the sector, see today's Lunchtime News... Meanwhile, the initial public offering of shares of financial services Banco Santander Puerto Rico <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBP)") else Response.Write("(NYSE: SBP)") end if %> moved ahead $1 3/8 to $22 7/8 after debuting at $21 1/2 per share.
Fleet Financial Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLT)") else Response.Write("(NYSE: FLT)") end if %> raced ahead $1 3/8 to $43 5/16 following reports that the financial institution is close to acquiring Sanwa Business Credit, the U.S. commercial lending unit of Japan's Sanwa Bank, for about $700 million... The nation's largest bank holding company, BankAmerica <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %>, added $1 1/2 to $63 1/16 after it announced it has agreed to sell Robertson Stephens Investment Management (RSIM) to a group of investors led by RSIM senior management for an undisclosed sum. The company said the sale, expected to be completed in the first quarter of 1999, will "not materially affect" earnings... Harrisburg, Pennsylvania-based bank holding company Keystone Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KSTN)") else Response.Write("(Nasdaq: KSTN)") end if %> locked up $1 3/8 to $30 15/16 after it announced plans to unify its seven banks under one name -- Keystone Financial Bank -- and a buyback program for up to 3 million common shares, about 5.8% of the total outstanding.
Financial services company People's Bank <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PBCT)") else Response.Write("(Nasdaq: PBCT)") end if %> improved $1 11/16 to $29 11/16 after it received a shareholder proposal for the board to take steps to merge or sell the company. The bank is studying the proposal to see whether it fulfills the requirements to be included in its 1999 proxy statement, but CEO David Carson said the company has "no intention" of selling... CuraGen Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CRGN)") else Response.Write("(Nasdaq: CRGN)") end if %>, which uses genomics to speed the development of therapeutic and agricultural products, grew $11/16 to $7 3/8 after it announced a partnership with Glaxo Wellcome <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLX)") else Response.Write("(NYSE: GLX)") end if %> to evaluate the pharmaceutical giant's preclinical product line. The partnership nets CuraGen $2.75 million annually plus royalties and other payments and could last up to five years.
Online retailer Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> rose $27 3/8 to $180 5/8 following yesterday's announcement of a 3-for-1 stock split effective Jan. 4... Drug company Sepracor Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEPR)") else Response.Write("(Nasdaq: SEPR)") end if %> bottled $6 3/16 to $81 3/16 after Merrill Lynch started it with "short-term accumulate" and "long-term buy" ratings... Healthcare company Integrated Health Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IHS)") else Response.Write("(NYSE: IHS)") end if %> picked up $1 3/16 to $11 13/16 after Morgan Stanley Dean Witter started coverage of the company with an "outperform" rating... Drugmaker American Home Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHP)") else Response.Write("(NYSE: AHP)") end if %> rose $2 13/16 to $52 7/8 as Salomon Smith Barney boosted its rating on the company to "outperform" from "neutral"... Howmet International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWM)") else Response.Write("(NYSE: HWM)") end if %> flew ahead $3/4 to $16 15/16 after Credit Suisse First Boston initiated coverage of the aerospace components manufacturer with a "buy" rating... Auto towing, impounding, and storage firm United Road Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: URSI)") else Response.Write("(Nasdaq: URSI)") end if %> rose $2 to $15 3/4 on news that Charterhouse Group International will buy $75 million of new convertible subordinated debentures due 2008.
Oilfield products and services provider Halliburton Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HAL)") else Response.Write("(NYSE: HAL)") end if %> piped in $1 1/16 to $33 1/16 after its Brown & Root unit announced a $581 million contract to help with the upgrade of the UK's military communications system... Oil and gas exploration and production company Unocal Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UCL)") else Response.Write("(NYSE: UCL)") end if %> rose $1 1/8 to $34 1/4 after it announced two new production-sharing drilling contract areas off the Indonesia shore... Fine chemicals manufacturer Catalytica <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTAL)") else Response.Write("(Nasdaq: CTAL)") end if %> bubbled up $1 3/8 to $18 7/8 after its combustion systems division announced plans to collaborate with General Electric Co.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %> power systems subsidiary to speed the commercialization of Catalytica's XONON pollution prevention technology for GE's gas turbines.
Pharmaceutical developer Warner-Lambert <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WLA)") else Response.Write("(NYSE: WLA)") end if %> popped up $1 1/2 to $79 5/8 after the company reaffirmed full-year 1998 EPS projections of $1.48 and expected 30% EPS growth for 1999. Analysts currently expect EPS of $1.93 next year, in line with company views... Cellular telecom provider PT Indosat's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IIT)") else Response.Write("(NYSE: IIT)") end if %> American depositary receipts rang up $1 5/16 to $16 7/16 on reports that it will increase its rates next week... Shares of Computer Literacy <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMPL)") else Response.Write("(Nasdaq: CMPL)") end if %>, which delivers computer training materials through the Internet, soared $9 15/16 to $19 15/16 following its $10 per share IPO... Computer-aided design (CAD) software maker Autodesk <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADSK)") else Response.Write("(Nasdaq: ADSK)") end if %> jumped ahead $4 3/16 to $35 3/16 after it reported Q3 EPS of $0.44, up from $0.41 last year and in line with market estimates... Specialty and memory modules assembler SMART Modular Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMOD)") else Response.Write("(Nasdaq: SMOD)") end if %> gained $1 3/8 to $23 7/8 after it turned in fiscal Q4 EPS of $0.26, up from $0.20 last year and in line with Wall Street projections.<% ' AvantGo:End %>
<% ' AvantGo:Goats %>Enterprise middleware solutions provider BEA Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BEAS)") else Response.Write("(Nasdaq: BEAS)") end if %> was walloped for a loss of $13 1/16, or 49.5%, to $13 6/16 after posting Q3 EPS of $0.07 (excluding charges), which was $0.03 ahead of last year's results and a penny better than the Street's expectations. However, the company provided a dreary outlook for the future. "The continued slowdown in Asia and worsening economic environment in the U.S. and Europe is lengthening the enterprise software sales cycle," CEO Bill Coleman said, prompting downgrades from all but two of the nine brokerage firms covering the stock. Of course, this story is nothing new to regular readers. The information technology (IT) spending slowdown is fast becoming the new growth slowdown-blame champ, taking recent bites out of IT outsourcers and firms in the enterprise resource planning (ERP) realm, among others.
Information technology educational services provider Computer Learning Centers <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLCX)") else Response.Write("(Nasdaq: CLCX)") end if %> slid $2 9/16 to $7 after BancBoston Robertson Stephens reduced its rating to "long-term attractive" from "buy," citing declining same-store student population growth trends at campuses in Virginia, Illinois, and Los Angeles, and reduced visibility due to ongoing regulatory investigations of the company's practices. The main concern is future actions by the Illinois State Board of Education, which sued the company for recruiting misrepresentations and other alleged violations at its campuses in the state back in March. While being a black eye for the company's recruiting efforts, those charges seemed to be water under the bridge, until today. Robbie Stephens said the end of the "settlement" was a procedural event and not really a positive for the company, since the board has yet to officially rule on the allegations. That ruling is expected in the next two weeks, according to the brokerage.
QUICK CUTS: Tractor and farm equipment maker Deere & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DE)") else Response.Write("(NYSE: DE)") end if %> was plowed under for a $1 5/16 loss to $37 11/16 after saying weak North American demand for its tractors will result in a production shutdown at its Waterloo, Iowa, plant and the temporary layoff of about 2,400 employees in December and January... Personal finance and tax preparation software developer Intuit Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTU)") else Response.Write("(Nasdaq: INTU)") end if %> was knocked down $2 1/2 to $57 1/2 following a report in The Wall Street Journal Interactive Edition that the company is in discussions to acquire privately held online stock quote service Quote.com Inc... Internet search and caching software developer Inktomi <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INKT)") else Response.Write("(Nasdaq: INKT)") end if %> fell $9 1/2 to $133 3/4 as the company priced a secondary offering of 3 million common shares at a price of $140 per share last night, which was below the firm's closing price of $143 1/4 per share yesterday.
Third-party phone billing clearinghouse Billing Information Concepts Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BILL)") else Response.Write("(Nasdaq: BILL)") end if %> lost another $2 to $10 1/4 after saying growth in its local exchange carrier billing business in fiscal 1999 will be "minimal," instead of the 10% to 15% growth previously expected. Lehman Brothers cut its rating on the company today to "market outperform" from "buy"... Bookseller Barnes & Noble <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKS)") else Response.Write("(NYSE: BKS)") end if %> fell $3 to $29 after reporting a Q3 loss of $0.07 per share yesterday, which was worse than the Zacks mean estimate of a loss of $0.01 per share. On its conference call, the company reportedly said same-store sales growth in Q4 will be between 5% and 6%, or slightly below the 6% to 7% growth analysts had been expecting.
Air carrier Trans World Airlines <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TWA)") else Response.Write("(AMEX: TWA)") end if %> skidded $3/8 to $5 1/2 after Goldman Sachs cut its rating on the firm to "market underperform" from "market perform"... Analog and mixed-signal integrated circuits maker Exar Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EXAR)") else Response.Write("(Nasdaq: EXAR)") end if %> fell $1 3/8 to $16 5/8 after saying its fiscal Q4 revenues will be reduced by about $2 million and revenues may fall by $1 million in each quarter of fiscal 2000 due to the unexpected closure of one of the company's foundry supplier's fabrication plants... Digital and analog oscilloscopes manufacturer LeCroy Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCRY)") else Response.Write("(Nasdaq: LCRY)") end if %> lost $1 5/8 to $16 3/4 after restating its fiscal Q1 results to account for $3.5 million in license fee revenues, which were recognized in the quarter but actually should not have been recognized until Q2 and Q4.
Drug developer Centocor <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CNTO)") else Response.Write("(Nasdaq: CNTO)") end if %> slid $4 15/16 to $45 15/16 after warning doctors of complications that may affect patients who stop taking but then resume treatment with Centocor's Remicade drug for Crohn's disease... Blood plasma expander and replacement technologies developer BioTime Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BTIM)") else Response.Write("(Nasdaq: BTIM)") end if %> bled $11/16 to $14 3/8 after the FDA completed its review of the company's new drug application (NDA) for its Hextend blood plasma volume expander, but requested several clarifications of the product before rendering an approval decision.<% ' AvantGo:End %>
FOOL
ON THE HILL
An Investment Opinion
by
Warren Gump
Internet Stocks and Valuation
<% ' AvantGo:FOTH %>We have seen an amazing rise in Internet stocks this year. Stocks like Amazon <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> and Yahoo <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> are up over 400%, while eBay <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EBAY)") else Response.Write("(Nasdaq: EBAY)") end if %> has risen almost 700% since its late September IPO. Just because these stocks have skyrocketed doesn't necessarily mean that they are overvalued. Intuitively, that last statement makes my value-oriented heart palpitate. (Then again, perhaps it was just those peanut butter M&Ms that I munched on!) But when you think about it, buying a stock is essentially purchasing its future cash flows, discounted back to the present. If you make relatively minor changes to your expectations for a company, a soaring stock price may be justified.
In the examples below, I'm actually going to use reported earnings as a cash flow proxy. This assumption can be a major oversight if the business you're evaluating has cash flows that differ from earnings, but it simplifies things to convey the main thrust of this article: small changes in assumptions and return requirements can cause dramatic variations in a company's value.
There is a little bit of mathematics behind this article, but you Fools who aren't geeks can hold onto your britches. I'm going to avoid putting complicated calculations in the text. If you trust my calculations, thank you. (Do you want to buy this nice used car I have?) If not, send me an e-mail and I'll zap you the very simple Excel spreadsheet that shows the numbers behind the numbers. Fair enough?
Let's start out with a few of our base case assumptions. Let's go back a few years and imagine we plan on creating a revolutionary new Internet firm that is going to sell books over the Internet. We have relatively modest initial ambitions, expecting to sell $10 million in books in Year 1. Our gross margin is projected to be 20% ($2 million), while operating costs (marketing, product development, general and administrative expenses) will run about $5 million. Pulling all that information together, we jave a projected Year 1 operating loss of $3 million.
Here are our projections and assumptions for the future: Through the fifth year of operations, sales will double each year. In years six through ten, sales are expected to rise 50% annually. We project that sales will grow 15% annually thereafter. As some relatively fixed costs are leveraged, operating costs as a percentage of revenue decrease on a rapid curve in the first three years, plumeting from 50% in Year 1 to 35% in Year 2 to 20% in Year 3. For the next four years, operating costs decrease 2 percentage points a year, after which they hold steady at 12%. Gross margin remains constant at 20% in all of our projections. Tax expense is 40% of profits, and the company will issue a total of 5 million shares.
Just to keep tabs on where these assumptions take us, Year 10 revenues are $1.2 billion. Net profit would be $58.3 million, or $11.66 per share. Not too bad for a ten year old upstart.
The big question that needs to be answered is the value of this company. First, we need one more piece of information. What rate of return are you, the investor, going to require for investing in this startup. You know that the S&P 500 has given investors a compounded return of 11.0% between 1926 and 1997. (Thanks for the info, TMF AnnC!). To invest in a risky start-up business (remember this is a few years ago), though, you are going to want a much higher return. Let's say you want to earn 25% per year.
Crunching through my spreadsheet, I find the value of this investment to be $18.56. That is the amount I would pay to receive a 25% return, assuming I believed all of the above assumptions to be accurate. What happens, however, if I change one of those assumptions. In financial analysis terms, what is the "sensitivity" of my valuation to various assumptions. To find out, we simply change one of the variables, holding everything else constant. Off we go!
Sensitivity to revenue growth: Let's say that instead of $10 million in revenue during the first year, we presume it to be $15 million. Remember, none of our other assumptions change. We still expect revenue to double from this Year 1 base through Year 5. No changes to margins and no changes to our required rate of return. How much is our bookseller now worth? Pulling out my spreadsheet, the value of the investment jumps by 50% to $27.84. Neat, a 50% rise in first year revenues (which is carried through to all future years) results in a commensurate rise in the value of the stock. One caveat here, this model is structured so that expenses are a specified percent of revenue. If they were modeled in such a way that some expenses were fixed, the percentage change in value would not necessarily equal the percentage change in revenue.
Now, let's look at what happens if we change the long-term revenue growth forecast. Instead of long-term growth of 15% after Year 10, let's assume it to be 20%. My spreadsheet spits out a value of $34.21. That's 84% higher than our original value, just from a little change in our expected long-term growth rate. On the other hand, if revenue growth is projected to be only 10% beyond Year 10, the value of our investment would only be $13.34. That's 28% below our original estimated value of $18.56.
Now let's look at margins. Instead of our original assumption of 20% margins holding throughout the existence of this firm, let's presume that margins will fall to 16% from Year 4 onward as more competitors come online. Yikes! That change is not a very good one. The value of this company would tumble 53% to $8.70. A price war could really have a dramatic impact on the value of this company.
Let's make one minor tweak to our price war scenario. Instead of a bitter battle to the end, perhaps the war will kill some of the more aggressive competitors. To incorporate this in our model, we'll throw in margins of 16% in Years 4 and 5, but have them rebound to 20% thereafter. What is the impact of this change? It changes our valuation model to $18.15 -- a drop in value of only 2% from our base case outcome, but not that important in the overall scheme of things. For this more moderate impact to be realistic, however, you better be confident that margins will rebound after Year 5.
Let's now check out the sensitivity to one last variable, the required return. We started out assuming that this figure would be 25%. What happens if investors start to feel more confident about the stability and growth of this company and only require a 20% annual return? Well, that one change in my model will increase the value of the company to $49.32. Yup, that one little change adds 166% to the value of the company.
Taking the converse view, a 5 percentage point increase in the required return, to 30%, has a pretty dramatic impact, too. Making that little adjustment to my model knocks 49% off the value, taking it down to $9.39. Yowsers, stay away!
As demonstrated in this article, small changes in assumptions can dramatically alter the valuation of a business. In the above examples, only one variable is changed at a time, which is somewhat unrealistic in the real world. On a day-to-day basis, all of these variables are dynamic. The impact, for example, of both increasing revenue assumptions and lowering the required rate of return is going to be much more dramatic than changing each variable independently.
What is happening with the Internet stocks? Investors see the phenomenal revenue growth of recent quarters and are extrapolating recent results into the future. At the same time, the required rate of return is decreasing as these investments become more mainstream and investors lower the risk they assign to such stocks. Combining those two changes with, potentially, a dab of margin expansion or operating leverage can relatively easily lead to a company being worth 1,000% more than it was worth a year ago.
Will the values being spit out by the models ever be realized? It really depends on the reasonableness of the assumptions put into the model. Microsoft has continually exceeded expectations since its IPO in 1986 and has made numerous investors millionaires. However, the folks who had rosy projections for Boston Market now find their company embroiled in bankruptcy.<% ' AvantGo:End %>
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
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