One of the best debates I have seen in recent history between @SunilBSinghania and Saurabh Mukherjea.
TOPIC: Has P/E lost its relevance?
I resonate more with Sunil’s side. Here’s a thread 🧵 on the main points made by him:
@varinder_bansal @safiranand @myvaluepicks
1/ Importance of PE
PE is not the only factor but an important factor.
Ultimately the growth has to justify how much PE are you paying for the company.
There cannot be an unlimited PE multiple based on some xyz parameters.
2/ Hindsight Bias:
In hindsight we can say that from 2001 to 2021, a company grew at 25 % and we should have given a very high PE to it.
But on the day when you buy, you don’t know that the company is going to grow at 25% for the next 20 years.
3/ Millennial preference:
Things have become more competitive.
New generation don’t really care much about legacy.
Convenience and affordability matters more.
The longevity and sustainability of growth has changed dramatically.
4/ Company that require a big investment - There is opportunity to invest big.
Company 1: Mkt Cap of 50 cr
Company 2: Mkt cap of 1 lakh cr
50c r company can become 3x, 1 lakh cr company cannot become 2x.
On absolute basis you end up making 5 cr vs 5k cr in 1lakh cr company.