The company's swear word mug was a hit in the U.S. It had $1 a share in earnings last quarter. Then, in a 5-week period, it released the mug in multiple languages in 36 countries, where it was also a huge hit. That next quarter, it had $3 in earnings. So some genius analyst on Wall Street wrote a report claiming, "At this rate of growth, the company could produce $5 then $7 in earnings this year, then $9 and $11 and $13 and $15 next year, to then earn $48 a share next year. At 25x that number with some discounting, it could trade for $1,000 a share."
Ok, so clearly the big growth rate was just a blip. It was not sustainable as a growth rate. In fact, the company would have been happy to just not shrink in subsequent quarters for a while, until it came up with new swear words and new languages to put on their internationally distributed mugs. So maybe $3 a share was sustainable; $15 was not.
Next year: Klingon.
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Finance: What are normalized earnings?5 Views
Finance allah shmoop what are normalized earnings All right this
is norm or it's supposed to be We just couldn't
get the licensing rights from him So this is our
public domain version of norm from cheers Sorry And this's
normal that's a bell curve Yeah you're in the ebola
abatement business Each year the government spends a few bucks
on you Just keep you alive Is a business in
case Well you know a few hundred million peoples faces
start melting off like you know that scene in indiana
jones you know the good ones so your earnings are
usually here and here and here and here a buck
a buck twelve twenty three twenty four years I'm like
that But then one year after miss malaria's high school
biology class takes a field trip to study monkeys bats
and beetle crap in caves in central ghana Well your
business picks up So this year when the gove is
having to spend a fortune on ebola abatement you were
nine dollars and forty two cents a share And since
world awareness has suddenly shot up the most popular yahoo
search term index that thing well next year you'll still
learn five seventeen to share even though most the ebola
is pretty much gone now But then things quiet down
in life goes back to normal where your earnings are
you know normal and you could plot some kind of
line through them And if someone asked you what normalized
earnings are in your little ebola abatement company well you
could say that your normalized earnings are in about a
buck twenty Well fortunately making out with the nigerian fruit
bat is not normal so you probably don't have to 00:01:40.539 --> [endTime] worry about contracting ebola Ooh
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