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Primary Article

Murphy's Law? An Examination of the Growth Flow Valuation Method for Technology Stocks

Tharan L. Cook, Michael J. Seiler and Sorin A. Tuluca
The Journal of Wealth Management Spring 2003, 5 (4) 50-56; DOI: https://doi.org/10.3905/jwm.2003.320464
Tharan L. Cook
An independent consultant with KPMG LLP Real Estate and Hospitality Advisory Services in Honolulu, HI.
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  • For correspondence: tharanleecook@hotmail.com
Michael J. Seiler
An associate professor of finance at Hawaii Pacific University in Honolulu, HI.
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  • For correspondence: mseiler@hpu.edu
Sorin A. Tuluca
An assistant professor of finance at Fairleigh Dickinson University in Madison, NJ.
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  • For correspondence: tuluca@fdu.edu
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Abstract

Investors in high-tech stocks, from biotechnology to computer hardware, are often challenged in their assessment of these securities as many technology firms are posting negative earnings, rendering traditional stock valuation methods ineffective. An alternative approach, called growth flow, values technology stocks by taking into consideration a firm's current earnings as well as its potential earnings, which is represented by investment in research and development. This study evaluates the usefulness of the growth flow valuation method in identifying innovative high-tech companies earlier than the market and in evaluating profitable investments. The results show that a company's growth flow has a stronger relationship with stock price than either current earnings or research and development expenditures alone. This study also demonstrates the ability of growth flow to identify undervalued stocks earlier than the market.

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Murphy's Law? An Examination of the Growth Flow Valuation Method for Technology Stocks
Tharan L. Cook, Michael J. Seiler, Sorin A. Tuluca
The Journal of Wealth Management Jan 2003, 5 (4) 50-56; DOI: 10.3905/jwm.2003.320464

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Murphy's Law? An Examination of the Growth Flow Valuation Method for Technology Stocks
Tharan L. Cook, Michael J. Seiler, Sorin A. Tuluca
The Journal of Wealth Management Jan 2003, 5 (4) 50-56; DOI: 10.3905/jwm.2003.320464
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