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You are technically correct, but the author still gets the important point right. The premium in valuation between these companies should and will shrink (unles

You are technically correct, but the author still gets the important point right. The premium in valuation between these companies should and will shrink (unless there is a reason to believe that Netflix will kill Disney or that Tesla will be dominating the automotive market at the expense of Fords and Toyotas.

mlthoughts2018 8y ago
The high P/E values for these companies are usually giant signals they are overvalued. Probably the only company that can legitimately sustain a ridiculous P/E is Amazon, and it’s because Amazon is the only large company willing to try weird shit and actually take product risks. I’m not a big fan of Amazon’s company culture, but I have to hand it to them that at least they try to do shit and see what works. Most companies beyond a certain size fall victim to in-house risk aversion through manager ranks to such a high degree that all innovative ideas are killed and only incremental product changes are allowed.
- Retric 8y ago
  P/E is a backward focusing metric, stock price is a forward looking metric. So, unless the company is static they don’t correlate that well. Look a BMW’s shrinking US / EU sales for the last several years and compare that with Tesla. You don’t want to pay a premium for a sinking ship do you? PS: The stock market may be irrational, but it’s rarely dumb.
  - mlthoughts2018 8y ago
    This sounds tone deaf to me. Having worked in quant finance myself for many years, I can safely assure you that investors look at price to intrinsic value metrics as a way to gauge overpriced stocks, not as a consensus metric of belief over future earnings.
    - Retric 8y ago
      For underpriced stocks the correlation is more obvious. I’d you see a P/E of 5 that’s not a good sign.
      - mlthoughts2018 8y ago
        Not true. For example, in low-beta investing, low P/E values for some sectors are super common, and seen as a sign of a deal on an undervalued stock.
        Retric 8y ago
        A P/E of ~10 is a value stock. Entravision Communication has a P/E of 2.11, that’s not a suggestion that it’s going to keep that ratio over time. Sure, ultra low P/E is a reason to investigate, but it’s not inherently a good sign. A common cause is a company splitting which makes the old P/E meaningless.
        mlthoughts2018 8y ago
        I agree nothing is inherently a good or bad sign, there’s no deterministic rule for where to find stock returns. I was just disagreeing that high P/E is commonly veiwed as a positive signal of future earnings.
  - agroot12 8y ago
    BMW sales do not seem shrinking to me: They boast 35 consecutive quarters of growth [1] and sold more cars year over year, at least in 2014-2017 [2], don't know about 2018, as it's not yet in the statistics. [1] https://www.press.bmwgroup.com/global/article/detail/T0283066EN/35th-consecutive-quarter-of-sales-growth-for-bmw-group?language=en https://www.press.bmwgroup.com/global/article/detail/T028306... [2] https://www.statista.com/statistics/264342/global-sales-volume-of-automobiles-of-bmw-group/ https://www.statista.com/statistics/264342/global-sales-volu...
    - Retric 8y ago
      Global numbers look fine, US and EU numbers don’t. US: 2017 305.685 1,77% 2016 313.174 1,79% 2015 346.023 1,98% 2014 339.738 2,06% Looks like 2018 numbers are up slightly in the US, though still below 2016 sales. 2018 311.014 1,79% http://carsalesbase.com/us-car-sales-data/bmw/ http://carsalesbase.com/us-car-sales-data/bmw/

mlthoughts2018 8y ago

The high P/E values for these companies are usually giant signals they are overvalued. Probably the only company that can legitimately sustain a ridiculous P/E is Amazon, and it’s because Amazon is the only large company willing to try weird shit and actually take product risks. I’m not a big fan of Amazon’s company culture, but I have to hand it to them that at least they try to do shit and see what works. Most companies beyond a certain size fall victim to in-house risk aversion through manager ranks to such a high degree that all innovative ideas are killed and only incremental product changes are allowed.

Retric 8y ago
P/E is a backward focusing metric, stock price is a forward looking metric. So, unless the company is static they don’t correlate that well. Look a BMW’s shrinking US / EU sales for the last several years and compare that with Tesla. You don’t want to pay a premium for a sinking ship do you? PS: The stock market may be irrational, but it’s rarely dumb.
- mlthoughts2018 8y ago
  This sounds tone deaf to me. Having worked in quant finance myself for many years, I can safely assure you that investors look at price to intrinsic value metrics as a way to gauge overpriced stocks, not as a consensus metric of belief over future earnings.
  - Retric 8y ago
    For underpriced stocks the correlation is more obvious. I’d you see a P/E of 5 that’s not a good sign.
    - mlthoughts2018 8y ago
      Not true. For example, in low-beta investing, low P/E values for some sectors are super common, and seen as a sign of a deal on an undervalued stock.
      - Retric 8y ago
        A P/E of ~10 is a value stock. Entravision Communication has a P/E of 2.11, that’s not a suggestion that it’s going to keep that ratio over time. Sure, ultra low P/E is a reason to investigate, but it’s not inherently a good sign. A common cause is a company splitting which makes the old P/E meaningless.
        mlthoughts2018 8y ago
        I agree nothing is inherently a good or bad sign, there’s no deterministic rule for where to find stock returns. I was just disagreeing that high P/E is commonly veiwed as a positive signal of future earnings.
- agroot12 8y ago
  BMW sales do not seem shrinking to me: They boast 35 consecutive quarters of growth [1] and sold more cars year over year, at least in 2014-2017 [2], don't know about 2018, as it's not yet in the statistics. [1] https://www.press.bmwgroup.com/global/article/detail/T0283066EN/35th-consecutive-quarter-of-sales-growth-for-bmw-group?language=en https://www.press.bmwgroup.com/global/article/detail/T028306... [2] https://www.statista.com/statistics/264342/global-sales-volume-of-automobiles-of-bmw-group/ https://www.statista.com/statistics/264342/global-sales-volu...
  - Retric 8y ago
    Global numbers look fine, US and EU numbers don’t. US: 2017 305.685 1,77% 2016 313.174 1,79% 2015 346.023 1,98% 2014 339.738 2,06% Looks like 2018 numbers are up slightly in the US, though still below 2016 sales. 2018 311.014 1,79% http://carsalesbase.com/us-car-sales-data/bmw/ http://carsalesbase.com/us-car-sales-data/bmw/