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- Topic: A philosophical question
| Author | Topic: A philosophical question |
|---|---|
| shakeel @2018-12-21 14:09:04 |
I know this is not how the real world works but theoretically speaking, assume a company is growing constantly at 10% and will probably do so in perpetuity. The multiple on this company hence should remain constant since its growth expectations are not changing , say p/E of 10x. So does the stock just keep on moving upwards every year as the numbers move up and the multiple remains the same? Thinking from another angle, the stock should jump to infinity because you are getting the company growing all the way to infinity? Makes sense? Thoughts? |
| nilla @2018-12-21 22:53:20 |
yes. that's why growth eventually falls inline with the real growth rate of the economy (as the company itself would eventually envelop and become the economy). |
| irisl @2019-03-25 08:19:36 |
1. reverts to the economy's _nominal_, not real, growth rate 2. any study I've seen on this (and I haven't seen very many) concludes that a firm usually reverts to its sector?s growth rate within 5 years. (which gives one pause when situations occur such as when google?s share price required 20y of consistent growth to justify) "getting the company growing all the way to infinity?" - No, because your discount rate is greater than your growth rate. |
CFA Discussion Topic: A philosophical question
I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
