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.
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
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.
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.
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.
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.
Companies like Colgate, HUL, Pidilite are bigger in size today. In many product categories, penetration & disruption caused by technology is higher.
Even if they have grown 25% for past how can you assume they will continue to grow at 25% in future.
If a company is growing at 10% and you pay 70 PE multiple - If your return expectation from the company is 10%, it has to trade at 70 PE infinitely.
This has not happened any where in the world.
There are only 5 companies in US that have traded at more that 50PE for more than 5 years.
Even Google, Apple and Microsoft are trading at 30-40 times earnings.
And people there think they are in a bubble.
Apple is a 30 PE stock, growing at 35%, has better ROE, and better Free Cash Flows than Indian quality and MNC companies.
In India, these so called quality companies are trading at the highest level anywhere else in the world.
Unless I am confident of the management I will not invest.
But who are we to give a certificate that this management is the best and this management is bad.
Its a fallacy to say larger companies have good management and smaller have bad.
6 months profit of Tata Steels > Years of profit of Asian Paints
HDFC has underperformed ICICI big time.
There is always a phase when you can say that it is priced beyond perfection.
When Interest rates were going down, there was a justification that PE should go up.
Now that the interest rates have started to go up, then based on that justification the PE should go down.
Quality at any price doesn’t work.
It has never worked in the last 300 years of history in the US or anywhere else in the world.
It is not going to work in India because India is not unique.
Any company that is only value, does not give you returns.
We look at companies where profit growth can be 2x in next 5 years.
Unless there is profit growth you will not make consistent returns.
We are not looking at 90% ROE company trading at 80PE.
We are okay with 25% ROE company growing at 15%, with 15PE. There is more money to be made here.
You have to start looking at companies young. Only way to play compounding for long term.
Everyone knows what Mr. Warren Buffett does.
No one has been able to mimic him because investing is more that formulas and numbers.
You need to have the feel of what to do when & stay with your conviction when you are not doing well.
More from Valuation
When we put a high multiple to sales, the most important thing to worry about is - what could disrupt those cash flows. A lower multiple to sales (like a 1x or 2x) justifies Yo-Yo cyclicality and 10x sales implies relatively stable gross margins, cash flow and business economics.
It's amazing \U0001f60a 25% NP
— Avinash (@Aviral_Bharat) February 17, 2022
$8b revenue
$2b Profit
$92b MCap
At 11 times revenue, it seems to be cheap compared to\U0001f609
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We know that elite institutions like the one Flier was in (partial) charge of rely on irrelevant status markers like private school education, whiteness, legacy, and ability to charm an old white guy at an interview.
Harvard's discriminatory policies are becoming increasingly well known, across the political spectrum (see, e.g., the recent lawsuit on discrimination against East Asian applications.)
It's refreshing to hear a senior administrator admits to personally opposing policies that attempt to remedy these basic flaws. These are flaws that harm his institution's ability to do cutting-edge research and to serve the public.
Harvard is being eclipsed by institutions that have different ideas about how to run a 21st Century institution. Stanford, for one; the UC system; the "public Ivys".
As a dean of a major academic institution, I could not have said this. But I will now. Requiring such statements in applications for appointments and promotions is an affront to academic freedom, and diminishes the true value of diversity, equity of inclusion by trivializing it. https://t.co/NfcI5VLODi
— Jeffrey Flier (@jflier) November 10, 2018
We know that elite institutions like the one Flier was in (partial) charge of rely on irrelevant status markers like private school education, whiteness, legacy, and ability to charm an old white guy at an interview.
Harvard's discriminatory policies are becoming increasingly well known, across the political spectrum (see, e.g., the recent lawsuit on discrimination against East Asian applications.)
It's refreshing to hear a senior administrator admits to personally opposing policies that attempt to remedy these basic flaws. These are flaws that harm his institution's ability to do cutting-edge research and to serve the public.
Harvard is being eclipsed by institutions that have different ideas about how to run a 21st Century institution. Stanford, for one; the UC system; the "public Ivys".
(1) Kushner is worth $324 million.
(2) Since 2016, Kushner has connived, with Saudi help, to force the Qataris (literally at a ship's gunpoint) to "loan" him $900 million.
(3) This is consistent with the Steele dossier.
(4) Kushner is unlikely to ever have to pay the "loan" back.
2/ So as you read about his tax practices, you should take from it that it's practices of this sort that ensure that he's able to extort money from foreign governments while Trump is POTUS without ever having to pay the money back. It also explains why he's in the Saudis' pocket.
3/ It's why the Saudis *say* he's in their pocket. It's why emoluments and federal bribery statutes matter. It's why Kushner was talking to the Saudi Crown Prince the day before the murdered Washington Post journalist was taken. It's why the Trump administration now does nothing.
(2) Since 2016, Kushner has connived, with Saudi help, to force the Qataris (literally at a ship's gunpoint) to "loan" him $900 million.
(3) This is consistent with the Steele dossier.
(4) Kushner is unlikely to ever have to pay the "loan" back.
Jared Kushner has a net worth of almost $324 million. But it appears that he paid little or no federal income taxes from 2009 to 2016, according to a review of confidential financial documents obtained by NYT. https://t.co/pMQDeCeDNq
— Kyle Griffin (@kylegriffin1) October 13, 2018
2/ So as you read about his tax practices, you should take from it that it's practices of this sort that ensure that he's able to extort money from foreign governments while Trump is POTUS without ever having to pay the money back. It also explains why he's in the Saudis' pocket.
3/ It's why the Saudis *say* he's in their pocket. It's why emoluments and federal bribery statutes matter. It's why Kushner was talking to the Saudi Crown Prince the day before the murdered Washington Post journalist was taken. It's why the Trump administration now does nothing.