Crazy valuations... Crazy stock performance

J

Jdesey

Look at the two attachments.... one is the top 20 stocks by highest P/E ratios... they range from 600 - 56,000 P/E !!!!

The other image is the performance of these stocks... only 5 are negative in the last quarter!

What does that tell ya about investor mentality. I started this research looking for short candidates for swing trades. Not for day trading. Guess I better come up with a different method.

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It blows my mind. How can you invest into a company that you're paying 5000 Times the earnings? Do People even understand what that is? It's like paying $25 million for a 1000 square-foot home in the middle of nowhere.
But then look at a great company like Apple still trading it just 17 times earnings
 
Two words.... Earnings Capability, like @dealmaker mentioned.

It's all about potential... If you really want to know if a company has potential or is a lemon, you can't just look at P/E. P/E doesn't really tell you that much anyway. Maybe for the more established companies, bluechips... but not for small firms with high earnings potential. P/E is current price compared with last years earnings... where the current price is valued on future expected earnings/cashflows.... and last years earnings has some relevance, but not as much as you think.

Also, look at any company which had a loss the last year.. so technically they will have a negative E/P.. so P/E isn't even calculated, since you can't use that divisor mathematically. Does that mean all those companies with negative earnings in the last year, or even last two years, are worthless? No....

Apple is established and cash rich... and then you could use P/E together with other parameters to compare it with other companies/benchmark. Biotech firms, they are usually not established.... cash burning... probably negative earnings due to high R&D and nothing on the market yet.

I'm not saying they are all good. But you need to look a bit deeper than just P/E ratios.
 
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I dont think you should only consider P/E as future good valuation. Lets say there is a company investing in oil making a good P/E. But tomorrow there is another company that finds a way for cars to run with water.

"Past performance does not guarantee future results "
 
Jdesey said:
It blows my mind. How can you invest into a company that you're paying 5000 Times the earnings? Do People even understand what that is? It's like paying $25 million for a 1000 square-foot home in the middle of nowhere.
But then look at a great company like Apple still trading it just 17 times earnings
More...
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You maybe on to something JD; when you find insane valuations, PXLW gets polar bear slapped from $150/+ to 00. 42. Its gone up a bit now, glad to hear that. I think PE maybe helpful if you were buying the whole company LOL ??They tend to overpay for biotek$ 2 LOL

IBD never pays much attention to PE ; some fund managers do, but they get paid on the gross.I see your points, no sense overpaying for 1,000 foot home unless there are some elephant oil wells on the property........................................................................
 
There is an ongoing shift into passive investing. People put money into ETFs often not even knowing what exactly are the underlying stocks it consists of. As the money pours in, ETF algos need to buy the underlying. So as the price keeps going up, everyone knows they did the right thing...
 
Talking the other day with investors about a possible Trump Bubble. Thoughts on objective rules to exit the market (eg. violate 200 day SMA) ?
 
socalpenguin said:
Talking the other day with investors about a possible Trump Bubble. Thoughts on objective rules to exit the market (eg. violate 200 day SMA) ?
More...
Ok here's something interesting. The major indexes are showing PE ratios from 20-82. SP is 24.

http://www.wsj.com/mdc/public/page/2_3021-peyield.html


Berkshire Hathaway, run by the smartest investor alive, Warren Buffet is sitting at a PE of 17. I venture to say that is a portfolio of high quality, reasonably priced stocks. Oh by the way, almost any time period you pull of longer than 12 months and Buffet has outperformed the S&p with far less stocks.

I believe it is only a matter of time till prices come back to fair market value.
In other words a big bear run to bring things back to reality.
 
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