TRMINAL GROWTH RATE OF STOCK PLUS

TRMINAL GROWTH RATE OF STOCK PLUS

Now that we know we’re looking for book value per share plus dividend growth rate and we see the long-term growth rate, the ten-year rate is 12.6 percent. What we’re going to do is go over and take a look at the numbers view.

Either one of these lines would actually be okay, but let’s go for book value per share. Look at book value per share plus dividends. Earnings per share, book value per share plus dividend, operating cash flow per share, sales per share are calculated automatically by the computer at .Īll we have to do is pick the line that looks like most representative of historical growth. The chart view shows us the growth rate and slope of the four major numbers we have to follow. Go to a chart view and see what this looks like. This is probably a pretty big moat company. It’s got an 84 score, a little bit yellow on the moat there, but still pretty decent score. I’m going to click on “stock at a glance” and it comes up with a good Rule #1 score. Let’s take a look at Darden Restaurants (DRI). Then we’re going to use the numbers view to learn what the growth rate is of that line. Then we’re going to use what’s called the chart view to pick a line of growth. We’re going to go over to the Rule #1 Toolbox, we’re going to find a good Rule #1 score. How do we do that? Finding the Growth Rateįinding the growth rate is really easy. Historical growth is useful to predict the growth rate only in big moat companies.įinding the growth rate of future cash is the first step to knowing the value of the business. If it doesn’t, then the historical growth doesn’t matter, because you never know when somebody is going to come and take away the whole business.

Historical growth is only useful to predict the growth rate if the business has a big moat. The growth rate is the speed at which earnings are going to grow on average for the next 10 years. This future growth rate is what we call the growth rate. In fact we start with meaning, then moat, then management to make sure we understand this business well enough and that it’s got a good enough management team that it can be durable, that it has durability that allows us to predict its future growth. Here’s what he actually said, “The key to investing is not assessing how much the industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and above all the durability of that advantage.” That’s what we call a moat.

Warren Buffett said that figuring out or understanding the growth rate all depends on the moat. We call value, the same as intrinsic value or retail value or what it would sell for to another business in a good market and we start to figure that out by figuring out the growth rate. We call that same analysis a margin of safety analysis in Rule #1 Investing.

We do a discounted cash flow analysis in business school to figure out what that pile of cash that’s going to happen in the future is worth today. Margin of Safety: Discounted Cash Flow Analysis That’s the pile of cash this business is going to earn as long as it exists out there. In that same way understanding, businesses have real value based on what’s called their future cash, or future cash flow. If you’re out there and pay $200,000 dollars for a $120,000 dollar Maserati, you still just got a $120,000 dollar, Maserati. Price is what you pay for something, but the value is what you get. One of the keys to getting a great margin of safety is to understand that price and value is not the same thing. That’s the whole secret to great investing.īuffett’s teacher Ben Graham, who wrote the Intelligent Investor, which is one of the best books on investing I’ve ever read said, “Buy stocks the way you buy groceries, not perfume.” That means to buy $10 dollar bills for $5 dollars. That means pay less than what it’s worth. Warren Buffett said, “The three most important words in investing are margin of safety.” That means to buy stuff on sale. Margin of Safety: The Three Most Important Words in Investing

Trminal growth rate of stock