Forum Archive Index - May 2000

["Derek Watt" <watt250@hotmail.com>]

>Derek,
>The approach that you have adopted in valuing FRO is simplistic

Of course it is.

>because at the end of the day, the price that you see flashing on your 
>screen for any stock is the MARKET price - what investors are prepared to 
>pay for a stock

Yes, that's right.

>based on a multitude of variables which may include future plans,
>projected earnings and growth of business etc etc!

sure

>There is no such
>thing as A + B = Potential share price.

Actually I think that you can apply maths to most things.

I wasn't suggesting that 40c will be the price that it
will sell at, I was suggesting that 40c is a
reasonable price for FRO.

As my estimate had such large assumptions in it, there
are very large errors here.

Three factors that I haven't included -

The Eric Watson Factor (2 *) = 80c

The US meltdown factor ((/2) = 20c

The Baycorp factor (p/e ratio of 35) = $1.80

etc etc.

I did include my own factor -

What I would pay for it factor - 20 * estimated earnings based on the
fact that my estimated eps of 5c is probably really going to be about
2c after initial costs of setting the company up, software developement
etc.

If you don't have reasonable estimates of future earnings and prospects
what are you going to use to determine the value of a share?

Its market price? - That sure didn't work for ITC at 50c it looked
cheap historically, also had good future prospects etc.

>You will probably find that FRO will re-open at a very high premium as all 
>indications point to
>tremendous investor interest in the prospects of this stock.

Sure, but people that pay inflated prices for any company
right now will get hurt when the U.S. has another big correction.

(of course)

Derek.


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