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I study stock market for more than a decade, for long term, and I perfectly now that company data should not be analysed in a isolatedly, but, any stock with P/
by edpichler 9y ago
I study stock market for more than a decade, for long term, and I perfectly now that company data should not be analysed in a isolatedly, but, any stock with P/E ratio 230.24 you need to be very careful, and put just the money you can afford to lose without disturb your sleep.
For whom that does not understand company ratios, a P/E ratio 230.24 is meaning that you need 230 years of profits to return to you the price you are paying today, of course, this does not consider that the company and profits will grow. But to have a parallel, at least in my country, really good companies have a P/E between 20 and 30, on average, and 30 is considered very high.
- brown9-2 9y agoIf netflix doesn’t pay a dividend, does a P/E analysis still make any sense?
- brucephillips 9y agoYes. Any public company must ultimately pay a dividend to be valuable. Edit: All of my responders are ignoring my use of "ultimately". A company can certainly invest in growth, but growth only matters if the company eventually returns money to shareholders, and the only way to do that is a dividend.
- edpichler 9y agoNo, as I explained up here. It can use the money to grow.
- plaguuuuuu 9y agoif there's no expectation of dividends ever being paid, the share price should be 0
- edpichler 9y agoAlso, some companies pay dividends, and after make loans to the bank (paying interests), to do investments.
- 1stranger 9y agoFalse. Berkshire Hathaway has no dividend.
- tonyztan 9y agoBerkshire Hathaway (Warren Buffet's company) is valuable yet does not pay dividends. https://www.investopedia.com/ask/answers/021615/why-doesnt-berkshire-hathaway-pay-dividend.asp https://www.investopedia.com/ask/answers/021615/why-doesnt-b...
- testfoobar 9y agoNot true - another way to return money to shareholders is to buy back their own stock. https://www.bloomberg.com/quicktake/buybacks-dividends https://www.bloomberg.com/quicktake/buybacks-dividends
- edpichler 9y agoFor sure, dividends donesn't mean nothing here. If a company is profitable and don't pay dividends to shareholders, they need to do something with the money that are accumulating, and they will invest on the company (new machines, products, services, etc. all accordingly with the company strategy), and if the company grows with this investments, the stock price will follows it.
- iamgopal 9y agoHow stock price follow it ? In a hypothetical scenario, if company declare not to pay any dividend any time in the future, nobody will invest in it no matter what.
- edpichler 9y agoBecause the money is on the bank, and it's shareholders property. The shareholders can change the administration council and hire people that will use the accumulated money to make more money, or use it paying dividends. The shareholders are the bosses, and chooses who occupies the administration council. I don't know if my hypothetical example was clear.
- repsilat 9y agoIf the company is closely held the shareholders may not be able to meaningfully affect the composition of the board of directors, and so may not be able to extract any value from it except in bankruptcy.
- laichzeit0 9y agoReally? Bitcoin pays no dividend and people buy it, even though at this point it's basically as useless as a stock that pays no dividend. I say this as a Bitcoin holder who does nothing with his Bitcoin because it's too slow and the transaction fees are too high.
- bulldoa 9y agoWhat does this mean for amazon (currently pe ratio of 300+)
- edpichler 9y agoI wouldn't put my money there. There is a lot of better choices with more return of investment. But, it's my money, you can do whatever you want with yours.
- jonknee 9y ago> There is a lot of better choices with more return of investment. Except it has actually been one of the best choices to put your money for quite some time. Things can always change, but an average annualized return of 38% over the past five years is really hard to complain about.
- brisance 9y agoNot on a risk-adjusted basis.
- ihsw2 9y agoInvestors buy Amazon because it's popular, not that its financials make sense.
- mobilefriendly 9y agoThis is nonsense. P/E is a measure of earnings against the price of one share. A high P/E does show that current earnings are small (or negative) in relation to share price, but there's no time component inherent in P/E.
- brucephillips 9y agoThere absolutely is. For a company to be valuable, it must return more profit to shareholders than they put in. The P/E ratio indicates how long it will take for this to happen.
- jonknee 9y agoNot really, it indicates how long if nothing changes over the long term. Which never happens. Netflix is growing very rapidly which makes P/E all but meaningless for "how long" questions.
- edpichler 9y agoYou are right. Today it represents just an expectation. On future, the P/E will decrease and stabilize after the company make profit and consolidate.
- jonknee 9y agoIt doesn't really even represent an expectation because nobody expects their financials to stay the same. Forward P/E fits that bill a little better.
- brisance 9y agoThe metric that Netflix uses is subscriber count, and all indications is that the subscriber count is not growing at a pace that explains the PE ratio. In fact the growth is declining as evidenced by their guidance for the quarter. http://www.businessinsider.com/netflix-q4-earnings-report-analysis-subscribers-revenue-eps-2018-1 http://www.businessinsider.com/netflix-q4-earnings-report-an...
- 11thEarlOfMar 9y agoI've held NFLX since 2013. I'd buy it again today, even at these prices. My view is that profits are low because NFLX is investing everything in original content.Their last 4 quarters of profit is about $550 million. But their spend on original content is expected to be $7 - $8 Billion in 2018 [0]. Theoretically, that $7 - 8 Billion, less income tax, could fall to the bottom line, putting their P/E in a much more reasonable ~20 range. AMZN is taking the same strategy: Invest in growth above all else and defer profits until the company is 'huge'. Moreover, for NFLX, revenue growth is accelerating (+23% 2016 vs. +30% 2017). Given the performance of management, both at NFLX and AMZN, it's a reasonable calculated risk to buy shares, even today, even at these outrageous prices. [0] http://www.adweek.com/tv-video/netflix-is-increasing-its-spending-on-original-content-how-will-competitors-like-hbo-respond/ http://www.adweek.com/tv-video/netflix-is-increasing-its-spe...
- nerfhammer 9y agoThis view ignores revenue growth. If the company is growing like a weed it may choose to reinvest everything and keep profit near zero. If there's no dividend the profit would just go into a war chest and collect some minimal interest rate. If the company thinks it can get a better return on investment by spending all income on growing itself it has every reason to do so, and all it has to do is beat that minimal interest rate. The only reasons not to: you have no ideas where to spend your own money to result in growth, you expect that reportable earnings will look good to some investors, you want a war chest to make some giant acquisitions, or you're planning on starting to issue a dividend relatively soon. Amazon has always had near zero earnings. Over the last 10 years its grown from ~$17 billion revenue to ~$140 billion in revenue. Yet they have almost no earnings! Barely profitable! It's wild and irresponsible! Yet Amazon is not on the brink of collapse. Despite near 10x growth their earnings have always been completely flat, near zero. Why is that? They're not booking earnings because they can't, they're not booking earnings because they're choosing not to, by spending it on growing themselves. It could be seen as a good thing: Amazon has lots of areas to invest in itself, if they didn't, maybe they're running out of ideas. Netflix has also grown by about the same multiple over the same time period as Amazon. Now, on the other hand, Netflix's price to sales is about twice that of Amazon. Amazon's price to sales is about the same as Apple.
- edpichler 9y agoYes, you are perfectly right! I confess I forgot about this point of the earnings. USA tax system is different of my country. Here, companies pay taxes about all the income, and on USA you have deductions when reinvest income in some kind of expenses. I believe this is why some companies spend it almost all, because the rules of the game are favoring to to this. So, the P/E ratio is almost irrelevant (or more complex to include on analysis) on USA than here.
- aoeusnth1 9y agoP/E is nearly useless because it counts capital expenses against earnings. A much better measure is cost of revenue.