Just some coments on LOOK....
• Insights: Given the above earnings and discount rate, LOOK must grow earnings at a rate of -10.5% annually for 10 years to justify its current stock price of $1.51. You can adjust the earnings growth rate and discount rate to see how they can dramatically alter LOOK's intrinsic value per share.
• Walk through: If we assume initial earnings of $38.6 million grow at a rate of 34.70%, and we discount those future earnings at a rate of 17.00%, we arrive at a net present value for the company's next 10 years of earnings of $908 million. To account for potential earnings beyond the 10th year, we estimate a growth rate of 6.00%, a discount rate of 12.00%, and we arrive at a continuing value of $2.79 billion. To complete the calculation we add these two figures together, subtract the long-term debt for LOOK ($1.00 million), and divide by the outstanding shares (107 million) to get a per share intrinsic value of $34.57.
Now the intrinsic value of LOOK is far fetched since they lost almost 70% of their earnings from next year, but with the search industry growing so fast, I find it hard to believe that LOOK's earnings growth will be in the negative 10.5% for the next ten years to justify current price.
Any comments welcome.
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