Last night, I decided to write a simple program that would calculate a stock's past EPS growth rate, and take into account current EPS, average P/E, and some other fields, and spit out an apoximated rate of return and a price that would represent the stocks dollar value a decade from now.
I'd been doing the calculation the old fashioned way, and finally decided to expedite the proecess with a program. Generally, we like stocks that can give us above a 14% annual compounded rate of return not including dividends. Here are some of the results:
Microsoft Corporation (Public, NASDAQ:MSFT)
year 1.........EPS: 1.74
year 2.........EPS: 1.97
year 3.........EPS: 2.22
year 4.........EPS: 2.51
year 5.........EPS: 2.84
year 6.........EPS: 3.21
year 7.........EPS: 3.62
year 8.........EPS: 4.09
year 9.........EPS: 4.63
year 10........EPS: 5.23
Estimated price a decade from now given past growth rate: $102
The estimated annual rate of return (no dividends) compounded is 13.0%
Nordstrom, Inc. (Public, NYSE:JWN)
year 1.........EPS: 1.81
year 2.........EPS: 2.12
year 3.........EPS: 2.48
year 4.........EPS: 2.9
year 5.........EPS: 3.4
year 6.........EPS: 3.98
year 7.........EPS: 4.65
year 8.........EPS: 5.44
year 9.........EPS: 6.37
year 10........EPS: 7.45
Estimated price a decade from now given past growth rate: $156
The estimated annual rate of return (no dividends) compounded is 16.2%
The Coca-Cola Company (Public, NYSE:KO)
year 1.........EPS: 2.97
year 2.........EPS: 3.27
year 3.........EPS: 3.59
year 4.........EPS: 3.95
year 5.........EPS: 4.35
year 6.........EPS: 4.78
year 7.........EPS: 5.26
year 8.........EPS: 5.79
year 9.........EPS: 6.37
year 10........EPS: 7.0
Estimated price a decade from now given past growth rate: $119
The estimated annual rate of return (no dividends) compounded is 7.7%
Caterpillar Inc. (Public, NYSE:CAT)
year 1.........EPS: 2.41
year 2.........EPS: 2.72
year 3.........EPS: 3.07
year 4.........EPS: 3.47
year 5.........EPS: 3.92
year 6.........EPS: 4.43
year 7.........EPS: 5.01
year 8.........EPS: 5.66
year 9.........EPS: 6.4
year 10........EPS: 7.23
Estimated price a decade from now given past growth rate: $181
The estimated annual rate of return (no dividends) compounded is 11.8%
International Business Machines Corp. (Public, NYSE:IBM)
year 1.........EPS: 11.65
year 2.........EPS: 13.98
year 3.........EPS: 16.78
year 4.........EPS: 20.13
year 5.........EPS: 24.16
year 6.........EPS: 28.99
year 7.........EPS: 34.79
year 8.........EPS: 41.75
year 9.........EPS: 50.1
year 10........EPS: 60.12
Estimated price a decade from now given past growth rate: $782
The estimated annual rate of return (no dividends) compounded is 19.8%
Remember now, these are just estimates, and by no means should you go out and buy a stock just because it's supposed to have a good rate of return. In fact, I can say with a fair ammount of certainty, that IBM will not be able to keep up it's pace over the next decade. The last bubble and recession skewed the data slightly, and don't even TRY to estimate the rate of return for banks like BAC and Citi. Nor should you trust it's results for new faces like Apple Inc. (Public, NASDAQ:AAPL), or Google Inc. (Public, NASDAQ:GOOG), as you'll get ridiculous growth rates.
All that being said, a prudent investor should always try and make their decisions devoid of emotion. This is a nice little screen if you want to invest LONG TERM in WELL KNOWN, LARGE CAP companies.
Remember to use diligence on all your picks. Comment or find me on twitter ("SambaStocks") if you want to request that I post any other results. I'll also post more periodically.
Good Luck,
Samba
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