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Trailing P/E is about as informative as the tea leaves in your cup. You should ignore it. Looking at Morgan Stanley's estimates for NVDA, their base case value
by airstrike 2y ago
Trailing P/E is about as informative as the tea leaves in your cup. You should ignore it.
Looking at Morgan Stanley's estimates for NVDA, their base case values them at $150.00 12 months from now, which is ~42x CY25 EPS of $3.57. According to the same report, the mean consensus estimate is ~$137.88 which if you assume the same EPS, equates to ~38.6x (this is from an Aug 29, 2024 report, which came out after NVDA's latest earnings, as usual)
For AMD, in the report that came out yesterday, the analysts values them at $169.00 which is ~43x FY2025 EPS of $3.94, below consensus estimates of $188.77 which imply a ~47.9x forward P/E ratio
Now this comes with a bunch of caveats like the different dates, the fact that each analyst has their own view on forward EPS, the fact that I picked just a couple of reports instead of looking at all analysts, the different periods from AMD's FY 2025 vs. NVDA's CY 2025... but two things appear to remain true: (1) trailing PE multiples are useless and the sooner we stop mentioning them the better and (2) the discrepancy in multiples you pointed out doesn't hold up to scrutiny
Diligencing the above caveats is left as an exercise to the reader
- dagmx 2y agoThe irony is that forward P/E is more similar to reading the tea leaves in your cup: it’s speculation.
- airstrike 2y agoFair and perhaps that was a bad metaphor in hindsight... But at least it's more connected to the actual current value of the stock seeing that it is defined by future not past cash flows It doesn't matter if those are the right cash flows, you're really trading based on the market's expectations of those cash flows anyway
- readthenotes1 2y ago"bad metaphor in hindsight" Clever! But it does make the opposition's point: while many will never acknowledge trouble in hindsight,it's much less common to acknowledge trouble in foresight ;)
- airstrike 2y agoI was wondering if anyone would notice it ;-) Re: trouble in foresight, analysts and practitioners try to account for that by creating scenarios. Note I cited the base case for the Morgan Stanley reports, but those also include a bear case and a bull case. Naturally those still depend on assumptions...
- georgeecollins 2y agoI don't disagree, but its good to point out that trailing P/E is an accounting fact, forward P/E is speculation. Trailing P/E needs less caveats but is also less predictive.
- airstrike 2y agoTrailing P/E is not an accounting fact, just the EPS bit is an accounting fact. The numerator and the denominator relate to totally different points in time and should not ever be used in unison.