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
June's research paper: Intangible Value ✨
Can value investing strategies be improved by adding intangible assets?
👾 The Asset-Light Economy
🔮 The Dark Matter of Finance
🏰 Intangible Moats
📉 The Disruption of Value
👨🎓 Fixing the "Value Factor"
(Not investment advice)
🧵
(0/10) Full paper here 📘
Blog
https://t.co/omtrn9kfvt
(1/10) The Asset-Light Economy 👾
“The four largest companies today by market value do not need any net tangible assets. They are not like AT&T, GM, or Exxon Mobil, requiring lots of capital to produce earnings. We have become an asset-light economy."
- Warren Buffett
(2/10) The End of Accounting 🧮
“The constant rise in the importance of intangibles in companies’ performance and value creation, yet suppressed by accounting and reporting practices, renders financial information increasingly irrelevant.”
- Baruch Lev and Feng Gu
(3/10) The Dark Matter of Finance 🔮
While intangible matter holds the financial universe together, it is not visible to the naked eye. Unstructured data contains info on intangibles but is large, noisy, and resistant to standard statistical analysis.
Can value investing strategies be improved by adding intangible assets?
👾 The Asset-Light Economy
🔮 The Dark Matter of Finance
🏰 Intangible Moats
📉 The Disruption of Value
👨🎓 Fixing the "Value Factor"
(Not investment advice)
🧵
(0/10) Full paper here 📘
Blog
https://t.co/omtrn9kfvt
(1/10) The Asset-Light Economy 👾
“The four largest companies today by market value do not need any net tangible assets. They are not like AT&T, GM, or Exxon Mobil, requiring lots of capital to produce earnings. We have become an asset-light economy."
- Warren Buffett
(2/10) The End of Accounting 🧮
“The constant rise in the importance of intangibles in companies’ performance and value creation, yet suppressed by accounting and reporting practices, renders financial information increasingly irrelevant.”
- Baruch Lev and Feng Gu
(3/10) The Dark Matter of Finance 🔮
While intangible matter holds the financial universe together, it is not visible to the naked eye. Unstructured data contains info on intangibles but is large, noisy, and resistant to standard statistical analysis.
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— r a y a \U0001f319 (@lcvelylilith) February 20, 2020
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Animist ceremonies of a religious or magical nature were normally held for the purpose of divination or making a request. This would either be done at a keramat or at a shrine similar to the Thai spirit houses or Chinese roadside shrines pic.twitter.com/I1hliyi0x3
— \u2745\u1710\u170b\u1713\u170e (@uglyluhan) June 16, 2019
Two known examples of such elemental spirits that had god-like status are Raja Angin (king of the wind) and Mambang Tali Arus (spirit of river currents). There were undoubtedly many more which have been lost to time
Contact with ancient India brought the influence of Hinduism and Buddhism to SEA. What we now call Hinduism similarly developed in India out of native animism and the more formal Vedic tradition. This can be seen in the multitude of sacred animals and location-specific Hindu gods
