Extreme PE's "wow"

Quote from scriabinop23:


Let's repeat: The value of an asset is the present value of all of its future cash flows.

That means it has nothing to do with the past. Not 'little', but nothing. PAST = meaningless.
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Not true in practice.
In order to get a present value, you need future cash flows and a discount rate. Future cash flows are usually based on prior data, although they can sometimes be completely projected. Discount rates are almost always based on prior data or existing data, the PAST.
 
Quote from trader_arb:

Not true in practice.
In order to get a present value, you need future cash flows and a discount rate. Future cash flows are usually based on prior data, although they can sometimes be completely projected. Discount rates are almost always based on prior data or existing data, the PAST.
More...

good points... all of these estimates of the future are derived from marginal analysis based on past statements, and cost of capital is entirely dependent on the past.
 
P/E ratios are always extreme in size coming out of recession.

1) Stocks, Just because a stock is earning 50 cents in a year per share. Doesn't mean a stock should be trading at $15 per share just to meet a standard 30 P/E ratio. Some stocks always trade higher due to Book Valuation, Shareholder equity, growth rate, and extraordinary circumstances.
2)The previous spikes in P/E ratio coming out of a recession did not factor in the increase in activity and amount of capital in the stock markets. With more capital more money has to be put to work. So, stocks are propped up because more money is available. Another reason, has to do with the magnitude of this recession compared to those previously.
3)The net P/E ratio on the S&P 500 can be diluted due to stocks performing negatively and reporting a loss on earnings. This could damage a major Index like the S&P easily and make it show a 84 P/E ratio.
 
If you filter out stocks that have negative or super-high PE's because of negative earnings in the recent past, what PE are we left with?
 
Quote from scriabinop23:

Threads like this are proof there are tons of people who don't know what they are buying (or not buying, in this case).

Let's repeat: The value of an asset is the present value of all of its future cash flows.

That means it has nothing to do with the past. Not 'little', but nothing. PAST = meaningless.

Thus, one would be wise to conclude any 'analyst' who presents a trailing PE chart as a reason to buy or sell something might be worth discounting/disregarding.

By this same logic of the original poster, a noncumulative preferred that has one temporary period of below breakeven cashflow is suddenly near worthless.
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I think we need to keep this as simple as possible.

#1. The value of a stock is not always reflected directly in its price. Thus the pe's could be out of wack because stocks have risen to far to fast. Pretty simple.

#2. Maybe just maybe some of our infamous CEO's are making future projections that are out of line. Naw they wouldn't do that.

#3. Whenever I see something that has not happened in 100 years and possibly ever, I stop and think, well what do we have here. Maybe this is some kind of extreme that will correct itself somehow.
 
Quote from Jander:

Yes, negative earnings + writeoffs = green shoots
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no, morons + free money = green shoots

Then there are various agencies like rating agencies (including the stock analyst community) who doesn't know what the hell they're doing and government agencies who keep revising everything down to bring whole new meaning to the word "unexpectedly".
 
Ya, and its called paper currency backed by nothing along with the fractional reserve banking system. One big Ponzi scheme.

FractionalReserveBanking.png


bailout.png
 
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