Your fair value estimate equates to some pretty whacky valuation metrics. For example:
Column 1 Column 2 Column 3 0 $2.00 $3.50 1 Current P/E 1.76x 3.08x 2 1-yr forward P/E 1.30x 2.28x 3 Current div yield (fully franked) 28.50% 16.29% 4 1-yr forward div yield (FF) 38.20% 21.83%
If I ever get the opportunity to invest in a company of similar quality and growth prospects as REA at the above multiples/yields, you can be guaranteed I will be mortgaging the farm, selling my house, my car, my comic collection and putting every spare penny I have into it. Because $2-$3.5 would be the investment opportunity of a lifetime.
Although, I can say with a very high degree of certainty, that you won't see that price again. It would take an absolute catastrophe for the company to fall to $2-$3.5, an event which neither you nor anyone else could possibly forecast.
Which leaves me wondering, how did you get to a FV of $2-$3.5, as your 'optimistic' valuation? At <8% of the the market valuation, your valuation appears unreasonable. I'm thinking either you have an unrealistic return hurdle or your valuation methodology/inputs are incorrect. Maybe you could post your workings to support your $2-$3.5 fair value??
Regards
Gralynchett
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Your fair value estimate equates to some pretty whacky valuation...
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