However, that assumes everything goes well and the stock's lofty
valuation multiple remains steady, which is far from a guarantee.
In order to add more quantity of such a stock at expensive valuation, the conviction of the investor should come from how accurately he could calculate and visualize the future earnings of the company provided
the valuation multiple remains the same or within a range.
Not exact matches
As usual, I don't place too much emphasis on this sort of forecast, but to the extent that I make any comments at all about the outlook for 2006, the bottom line is this: 1) we can't rule out modest potential for stock appreciation, which would require the maintenance or expansion of already high price / peak earnings
multiples; 2) we also should recognize an uncomfortably large potential for market losses, particularly given that the current bull market has now outlived the median and average bull, yet at higher
valuations than most bulls have achieved, a flat yield curve with rising interest rate pressures, an extended period of internal divergence as measured by breadth and other market action, and complacency at best and excessive bullishness at worst, as measured by various sentiment indicators; 3) there is a moderate but still not compelling risk of an oncoming recession, which would become more of a factor if we observe a substantial widening of credit spreads and weakness in the ISM Purchasing Managers Index in the months ahead, and; 4) there
remains substantial potential for U.S. dollar weakness coupled with «unexpectedly» persistent inflation pressures, particularly if we do observe economic weakness.
- Applying a 3.5 x revenue
multiple to WU.com, which is a discount to Xoom's 4.8 x revenue takeover
multiple, and 15x EV / FCF to WU's
remaining businesses (retail C2C, C2B, and B2B), which is a substantial discount to MoneyGram's 21x EV / FCF takeover
valuation, they derive an intrinsic value estimate of ~ $ 33 per share for WU at the end of 2020, offering ~ 72 % upside, or a 3.5 - year IRR of ~ 20 % including the dividend (3.7 % current yield).
If we assume that
valuations will
remain where they are today,
multiples above prior historical averages, then the future rate of that compounding is going to be reduced accordingly.
One is a pure contraction in
valuation multiples, where prices plummet but fundamentals like revenue and earnings
remain mostly unchanged.
This quarter did not show any significant causes for concern, and the
valuation remains reasonable given its growth rates and peer
multiples.