Valuation of Stocks with Extraordinary Growth Prospects

Abstract

The objective of this article is to suggest a systematic approach for evaluating stocks with extraordinary growth prospects to supplement the conventional valuation of growth companies. The approach is simple but the determination of the necessary inputs remains as difficult as ever. Also, the proposed calculation does not replace conventional valuation measures, but complements them. The objective is to compute the minimum period of extraordinary growth that justifies the current stock price. The minimum required growth periods for different assumed earning growth rates can be readily computed. When the earnings history of the company consists of all loss years, any calculation will have a large subjective component.