The Dark Side of Valuation: Valuing Young, Distressed, and Complex Businesses, Second Edition

Conclusion

When valuing a growth company, we confront many of the issues we faced with young idea companies, albeit on a lesser scale. Data on past operations provides a short, volatile, and not particularly useful basis for forecasting the future. Much of the company’s value comes from expectations about how high growth will be in the future, how long this growth can be sustained, and the quality of this growth, all of which are difficult to forecast. In particular, the rate at which growth rates will drop as the company becomes bigger will be a key factor determining its value. Estimating risk parameters from stock price data can yield strange values, and the firm’s risk profile will change as its growth rate changes.

Analysts, confronted ...