All Categories Calculations TYKR - Sticker Price

TYKR - Sticker Price

By Sean Tepper
February 17, 2021

Here is some context on the data points used within the TYKR Sticker Price calculation.

  1. We use the EPS growth rate over the previous four years.  If a company continues to increase its profitability year over year without adding more shares, this is a great sign.  We use the EPS Growth Rate over the Share Price Growth Rate because the EPS is a sum of the net income divided by the number of shares.  Share price on the other hand can move based on emotions.  That’s why share price growth rate is a misleading indicator.

  2. We use the “10-10 Rule.”  As Warren Buffett states “If you are not willing to own a stock for 10 years, do not even think of owning it for 10 minutes.”  Our Sticker Price only considers buy and hold stocks.  We’re not traders, we’re investors.  We’re looking to make investments in stocks and let those stocks make us money through the power of compound interest.

  3. We use the “Rule of 72.”  The rule of 72 determines the number of years it requires for an investment to double.  For example, if you take 72 / 10% annual return, this means it will take 7.2 years for the stock to double.  If you take 72 / 15% annual return, this means it will take 4.8 years for the stock to double.  As Phil Town teaches, we move this number down to 4.  Although this may appear slightly more aggressive than 5, it’s still highly accurate.

Equation:  (Share Price*(1+Annualized EPS Growth Rate)^10)/4 = TYKR Sticker Price

With the TYKR Sticker Price we add an extra layer of rigor to ensure the Sticker Prices are not too high or too low.

If the Annualized EPS Growth Rate is equal or greater than 30%, the highest growth rate is set to 30%.

If the Annualized EPS Growth Rate is equal or less than 15%, the lowest growth rate is set to 15%.

Where...

  • Share Price = Current Share Price

  • Annualized EPS Growth Rate = Annualized EPS Growth Rate over 4 years

  • 10 = 10 years for the Rule of 10

  • 4 = 4 for the 15% minimum required rate of return

Data inputs you’ll require...

  • Share Price

  • EPS = EPS TTM

  • EPS4 = EPS 4 Years Past

  • 10

  • 4

Equation 1 Description:  We need to determine the total EPS growth rate over 4 years.

Equation 1:  (EPS - EPS4)/(ABS(EPS4)) = Total EPS Growth Rate 

Equation 2 Description: We need to determine the annualized EPS growth rate over those 4 years.

Equation 2:  (1+(Total EPS Growth Rate))^(1/4)-1 = Annualized EPS Growth Rate 

If the Annualized EPS Growth Rate is equal or greater than 30%, the highest growth rate is set to 30%.

If the Annualized EPS Growth Rate is equal or less than 15%, the lowest growth rate is set to 15%.

Equation 3 Description:  Now we need to determine the Sticker Price.

Equation 3:  (Share Price*(1+Annualized EPS Growth Rate)^10)/4 = TYKR Sticker Price

Example 1:  GOOGL (Google)

Data inputs you’ll require...

  • Share Price = $1,731

  • EPS = 49.59

  • EPS4 = 23.11

  • 10

  • 4

Equation 1 Description:  We need to determine the total EPS growth rate over 4 years.

Equation 1:  (EPS - EPS4)/(ABS(EPS4)) = Total EPS Growth Rate 

Equation:  (49.59 - 23.11)/(ABS(23.11)) = 114.58%

Equation 2 Description: We need to determine the annualized EPS growth rate over those 4 years.

Equation 2:  (1+(Total EPS Growth Rate))^(1/4)-1 = Annualized EPS Growth Rate 

Equation:  (1+(1.1458))^(1/4)-1 = 21.03%

Equation 3 Description:  Now we need to determine the Sticker Price.

Equation 3:  (Share Price*(1+Annualized EPS Growth Rate)^10)/4 = TYKR Sticker Price

Equation:  (1,731*(1+.2103)^10)/4 = $2,918.92

Example 2:  FB (Facebook)

Data inputs you’ll require....

  • Share Price = $277

  • EPS = 6.48

  • EPS4 = 1.31

  • 10

  • 4

Equation 1 Description:  We need to determine the total EPS growth rate over 4 years.

Equation 1:  (EPS - EPS4)/(ABS(EPS4)) = Total EPS Growth Rate 

Equation:  (6.48 - 1.31)/(ABS(1.31)) = 394.66%

Equation 2 Description: We need to determine the annualized EPS growth rate over those 4 years.

Equation 2:  (1+(Total EPS Growth Rate))^(1/4)-1 = Annualized EPS Growth Rate 

Equation:  (1+(3.9466))^(1/4)-1 = 49.13%

The Annualized EPS Growth Rate is 49.13% which is higher than 30%.  So in this case we change the Annualized EPS Growth Rate to 30%.

Equation 3 Description:  Now we need to determine the Sticker Price.

Equation 3:  (Share Price*(1+Annualized EPS Growth Rate)^10)/4 = TYKR Sticker Price

Equation:  (277*(1+.4913)^10)/4 = $954.67

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