High growth companies normally have high multiples

Long_Equity
01-22

High growth companies normally have high multiples.

I created this table to show the relationship between growth and multiples👇

In short, a PE ratio of 50 requires a 20% earnings growth over 5 years to turn that multiple from 50 -> 20.

FYI, I use FCF yield - not P/E.

$.SPX(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $.IXIC(.IXIC)$ $NASDAQ 100(NDX)$ $Invesco QQQ(QQQ)$ $.DJI(.DJI)$ $FT Vest U.S. Equity Deep Buffer ETF - January(DJAN)$

ImageImage

Two things you can do to become a better investor:

1. Limit the number of companies you own

2. Limit how frequently you trade

This forces you to:

1. Only own your best ideas

2. Accept there will always opportunities you miss out on

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

  • SuperDuper1
    01-22
    SuperDuper1
    Your table shows P/E at T=5 and it declining by a linear fashion for increasing CAGR, which totally doesn’t make sense . Present PE reflects future growth and current PE cannot be constant for differing growth rates.
  • Erihui
    01-22
    Erihui
    Great article, would you like to share it?
  • setia100
    01-22
    setia100
    good advice 👍
  • KSR
    01-22
    KSR
    👍
Leave a comment
4
43