How to Calculate Future Growth Rates (Apple Example)

In this video I am going to look How to Calculate Future Growth Rates of a Company or Stock. We will look at an example of Apple.

https://www.youtube.com/channel/UCEw8g3JYCLo8K3XQmUfYuDg?sub_confirmation=1

Why do we need future growth rates?

Growth rates are important as we are investing for our money to grow, and for our money to grow the company we invest in needs to grow.

It’s difficult to have any degree of certain when it comes to the growth rate. This is why we require a margin of safety.

It is really important to pick an accurate starting number. Check previous data and make sure it’s not an outlier.

Look for a range of possible growth rates when coming to a valuation (conservative to optimistic).

Phil Town uses the 4 rates so they can’t all be cheated. For example, it’s easy to cheat the EPS number by repurchasing stock.

Considerations when choosing a growth rate?

1) What stage is the business in?

- Startup
- Growth and Expansion
- Maturity
- Renewal / Decline

2) Size of the business

- Small cap
- Mid cap
- Large cap

3) Previous performance

- Do the company have a track record of strong previous growth.

4) Growth runway ahead
5) Analyst estimates
6) Does the company have at least 10 years of previous data to look at? This will exclude IPO’s

I am investing for the long-term so I want to be as certain as possible that the company can continue growing for at least 10 years.

Research

- Previous historic growth of the company.
- Previous historic growth of the industry.
- What is the total addressable market (TAM) – This should give us an idea of the growth runway ahead.
- How can they grow? – Increase same store sales, moving into international markets, adjacent markets (e.g. Apple moving into medical tech devices – latest version of the Apple Watch (top model).
- Where do they make their money?
- Competitors.
- Moat.
- Management team.
- Events – What were they, how did the company perform.
- Is the business cyclical, you should see this in the numbers.

*Remember the law of large numbers! For an already large company it will be more difficult to grow as fast as a smaller company.

Places to get future growth rates

- Look at analyst estimates on Yahoo finance. This will be for the next 5 years.
- Also note, analysts growth rates are often off from what the true growth ends up at.
- Look at past growth rates and extrapolate those into the future (remember past performance does not indicate future performance)!
- Video out of the rear window of a car – You can’t drive forwards looking out of the rear view mirror.
Enjoy the video!
Useful links from video.

Phil Town Rule 1 Investing Toolbox – Free 30 Day Trial

https://www.ruleoneinvesting.com/toolbox/

Margin of Safety Calculator and Sticker Price

https://www.ruleoneinvesting.com/margin-of-safety-calculator/

How to analyze stocks using Phil Town’s 4M’s Approach

https://youtu.be/2HnWmXpYqvk

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Disclaimer: Dan Powell is not a financial advisor. All content is for education and entertainment only. Always seek assistance from a qualified professional before making any investment decisions.

Видео How to Calculate Future Growth Rates (Apple Example) канала Financial Interest