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What is the problem with analyst growth estimates?
- Growth is in earnings per share, while, for valuation, you often need it in operating income or revenues.
- The growth rate is generally highly correlated with historical growth.
- The growth rate is not a good estimate for future growth.
- It’s not really your intrinsic value, if it is the analyst estimate of growth.
It’s all of the above.
Growth comes from two important choices
- How much you reinvest? - Reinvestment growth
- How well you reinvest? - Efficiency growth
It simply cannot grow, this company in question from the question. It’s not reinvesting or making the growth in terms of efficiency.
Efficiency growth is easier because additional capital is required, but the catch is that, there is an ed. Your company cannot keep becoming more efficient forever.