4 ms·

Wouldn't the moats, scalability, reliable revenues all contribute to increased earnings and thus (perhaps) lower PE ratios? Anecdotally, many companies have gr

Wouldn't the moats, scalability, reliable revenues all contribute to increased earnings and thus (perhaps) lower PE ratios? Anecdotally, many companies have grown their earnings per share by buying back their stock. That causes an interesting feedback effect as these purchased shares become more valuable as the stock price rises (i.e., the company's book value increases as its stock price rises because they own the shares they purchased.) I didn't realize that Japan had its central bank buying equities and flooding the market with cheap yen, with only minor effect on the Nippon Index. I had assumed that the main reason for the U.S. stock market rise since 2008 was both due to low interest rates driving investors to higher returns in the stock market (a self-fulfilling effect) and due to the Fed pumping cash into the economy, which also needed to go somewhere better than banks. But if that didn't work for Japan, then I have no idea what is going on. Apologies for talking about markets on HN. But this place is a good one for reasoned discourse, so I hope an exception can be made.

jandrewrogers 5y ago
Revenue growth is financed by earnings, so you would expect P/E ratio to be higher for companies that are still scaling regardless of their size. A high P/E does not indicate an over-valued company prima facie, which is accounted for by investors. P/E ratios are more indicative of value when revenue growth is hovering around 0%.
redis_mlc 5y ago
Japan is a mess. Most of their "markets" are owned by the govt now, something like 80%. It would take a few hours to understand what happened there, since it's a unique situation. It involves numerous scandals, suicides, near bank runs, etc.
vladd 5y ago
>> the company's book value increases as its stock price rises because they own the shares they purchased. You might refer to the company's intrinsec value. On the book value, repurchased shares are accounted for at the original purchase price as treasury stock ( https://www.investopedia.com/articles/fundamental-analysis/08/buybacks-vs-book-value.asp https://www.investopedia.com/articles/fundamental-analysis/0... ).
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jandrewrogers 5y ago

Revenue growth is financed by earnings, so you would expect P/E ratio to be higher for companies that are still scaling regardless of their size. A high P/E does not indicate an over-valued company prima facie, which is accounted for by investors. P/E ratios are more indicative of value when revenue growth is hovering around 0%.

redis_mlc 5y ago

Japan is a mess. Most of their "markets" are owned by the govt now, something like 80%. It would take a few hours to understand what happened there, since it's a unique situation. It involves numerous scandals, suicides, near bank runs, etc.

vladd 5y ago

>> the company's book value increases as its stock price rises because they own the shares they purchased. You might refer to the company's intrinsec value. On the book value, repurchased shares are accounted for at the original purchase price as treasury stock ( https://www.investopedia.com/articles/fundamental-analysis/08/buybacks-vs-book-value.asp https://www.investopedia.com/articles/fundamental-analysis/0... ).

deleted 5y ago

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