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Author: TMFEdible Big red star, 1000 posts Supernova Phoenix 1
Mission Team Member CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1766  
Subject: Re: 5 yr growth rate Date: 5/11/1997 10:57 PM
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On Thu, 08 May 97 13:23:01 -0600, rein wrote:
<<

On Thu, 08 May 97 07:16:43 -0600, ChuckRock wrote:

First Call has the 5-year growth rate at 50%. However, I think that needs a large footnote. The gorwth will be highly 'front loaded.' The company is likely to grow 100%+ this year on the bottom line with 20-30% growth four to five years from now.



Yes, I too am curious how to treat these diminishing growths. They seem to have terrible affects on stock performance. Consider Lone Star Steakhouse (STAR). This company also has an excellent financial situation. Their earnings and sales growth exceed 25%, their net margin is greater than 10%, their PEG is .5 and there YPEG is 60 with current price $21 (last time I looked). They consistently beat their earnings estimates but the stock has been declining for over one year now.



I attribute this to their declining growth rate. They had 168% earnings grwoth in 93, 78% in 94, 51% in 95, 31% in 96 and they are projected to have 26% in 97. Is RAIN headed for the same fate? Or is there some other reason for STAR's poor stock performance?



Reinhard

>>

Reinhard, true, and STAR's 1998 earnings are expected to grow just 20%. A company can't double units, and earnings forever.

Lone Star's slowing growth, but also their recent 5.1% same store sales decline, is what has soured Wall Street.

Obviously fodder for a different folder, but I think Lone Star is worth more than the current market perception.

STAR is cash rich, $4 a share or per share in cash. Not as nice as the $9 a share of cash with RAIN, but still a welcome sign.

With RAIN, given the potential, yes, eps will slow, from doubling this year, to the projected 56% next year, etc.

Still, if the price of RAIN appreciates at a slower pace than earnings growth, the P/E will shrink obviously.

Units are set to triple this year, so I think the 1998 estimates are too conservative, but even as unit growth, and therefore top-line growth slows to a sustainable clip, the e in the p/e will be way high.

So, while one may think, that 5 years from now eps may grow just 30%, that's like saying eps will go from $5 to $6.50 a share. And even if RAIN were given the weak valuation of STAR it would still be an $80 stock.

But, I don't think RAIN will command a P/E of 12 then, just as I don't think STAR will by the end of the year.

I don't mind being wrong on price if I'm right on fundamentals,

Rick


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