You are doing research on Paranoid Corp (PC).PC is a young, start up company. Currently, PCs cost of goods sold is 95% of their sales (so they have a 5% gross margin). PC is expected to grow rapidly and they will not need a lot of capital investment to fuel that growth. Given their low margin, most analysts believe that PC is overvalued but there is one analyst who thinks that PC is undervalued and has a much higher target price than other analysts. Given the information given in the question, what is the analyst that has the much higher target price likely assuming and why is that assumption valid?
Please answer two questions.
a. what is the assumption?
b. why is it valid?
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