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Before Burry's bets were disclosed, Palantir's trailing price-earnings ratio (P/E) peaked at 486x. What does that mean? I like to think about it this way: Abse
by cs702 11mo ago
Before Burry's bets were disclosed, Palantir's trailing price-earnings ratio (P/E) peaked at 486x. What does that mean?
I like to think about it this way: Absent growth, had a private investor purchased the business at 486x earnings, it would have taken the investor 486 years to recoup the investment.
Only crazy-fast future growth could justify that multiple.
I estimate earnings/share would have to grow 30-fold within a foreseeable time frame, like 5-7 years, to justify the peak price per share.[a]
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[a] Back-of-the-envelope math: 486x peak / 15x long-term average P/E = 32-fold increase to justify valuation. I rounded it to 30-fold.
- weird-eye-issue 11mo agoExpenses can be reduced too. It's not solely about earnings growth.
- danielmarkbruce 11mo agoIf a company has 1 billion in revenue and 999 million in costs, they are doing 1 million in earnings. It's trivially easy for them to grow earnings 30x, they can just decide to do it in most cases. You have to look at the cost structure now v what it should be in a "steady state" situation, perhaps 10 years out.
- svantana 11mo agoThis math doesn't always hold up to common sense, as these ratios will explode when E hovers around zero, but it has a very small effect on the business itself.