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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

by 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/

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/