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Comment by mlthoughts2018 | Hacker News Reader

mlthoughts2018

The high P/E values for these companies are usually giant signals they are overvalued.

Probably the only company that can legitimately sustain a ridiculous P/E is Amazon, and it’s because Amazon is the only large company willing to try weird shit and actually take product risks. I’m not a big fan of Amazon’s company culture, but I have to hand it to them that at least they try to do shit and see what works. Most companies beyond a certain size fall victim to in-house risk aversion through manager ranks to such a high degree that all innovative ideas are killed and only incremental product changes are allowed.

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P/E is a backward focusing metric, stock price is a forward looking metric. So, unless the company is static they don’t correlate that well.

Look a BMW’s shrinking US / EU sales for the last several years and compare that with Tesla. You don’t want to pay a premium for a sinking ship do you?

PS: The stock market may be irrational, but it’s rarely dumb.

BMW sales do not seem shrinking to me: They boast 35 consecutive quarters of growth [1] and sold more cars year over year, at least in 2014-2017 [2], don't know about 2018, as it's not yet in the statistics.

[1] https://www.press.bmwgroup.com/global/article/detail/T028306...

[2] https://www.statista.com/statistics/264342/global-sales-volu...

Global numbers look fine, US and EU numbers don’t.

  US:
  2017	305.685	1,77%
  2016	313.174	1,79%
  2015	346.023	1,98%
  2014	339.738	2,06%

Looks like 2018 numbers are up slightly in the US, though still below 2016 sales.

2018 311.014 1,79%

http://carsalesbase.com/us-car-sales-data/bmw/

This sounds tone deaf to me. Having worked in quant finance myself for many years, I can safely assure you that investors look at price to intrinsic value metrics as a way to gauge overpriced stocks, not as a consensus metric of belief over future earnings.

For underpriced stocks the correlation is more obvious.

I’d you see a P/E of 5 that’s not a good sign.

Not true. For example, in low-beta investing, low P/E values for some sectors are super common, and seen as a sign of a deal on an undervalued stock.

A P/E of ~10 is a value stock. Entravision Communication has a P/E of 2.11, that’s not a suggestion that it’s going to keep that ratio over time.

Sure, ultra low P/E is a reason to investigate, but it’s not inherently a good sign. A common cause is a company splitting which makes the old P/E meaningless.

I agree nothing is inherently a good or bad sign, there’s no deterministic rule for where to find stock returns. I was just disagreeing that high P/E is commonly veiwed as a positive signal of future earnings.

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