The evolution of PE ratios is fascinating. That chart at the end is particularly fascinating. Did you make it yourself? And do you have data for recent years?
I know your blog is all about how to manage investments -- but I come at this from a public finance background -- so I have to ask another question:
Hi! Yeah the last chart is very interesting. I didn't do it myself. For all the chart, if it is not from me, I quote the source (in this case it is directly in the chart itself).
And for your question, I find it very interesting. I think there are several reasons:
- The PE are high mainly in the US and for large caps
- This comes, for me, from the huge cash inflow to the US (from US citizen but also from foreign investors) + the concentration due to passive investing
I am not sure this is really sustainable but for now, this is a fact: markets are expensive
As I follow growth, EPS growh and PE, I calculate a PEG. In my small cap portfolio most of the stocks have a PEG under 1. Very interesting to be sure not to overpay. But for some stocks, PEG is not that relevant
Merci pour cet article ! Le PE ratio est un bon point de départ, mais il ne doit pas être utilisé seul. Il est essentiel de considérer d'autres facteurs, comme la croissance des bénéfices, la stabilité du secteur, ou la position d'une entreprise sur son marché. Comparer le PE d'entreprises du même secteur peut être pertinent, mais encore faut-il prendre en compte leurs spécificités. /********/Thanks for this article! The PE ratio is a good starting point, but it shouldn't be used on its own. It's essential to consider other factors, such as earnings growth, industry stability, and a company's position in its market. Comparing the PE ratio of companies within the same sector can be useful, but it’s important to account for their specificities.
The evolution of PE ratios is fascinating. That chart at the end is particularly fascinating. Did you make it yourself? And do you have data for recent years?
I know your blog is all about how to manage investments -- but I come at this from a public finance background -- so I have to ask another question:
Why are PE ratios so high these days?
Hi! Yeah the last chart is very interesting. I didn't do it myself. For all the chart, if it is not from me, I quote the source (in this case it is directly in the chart itself).
And for your question, I find it very interesting. I think there are several reasons:
- The PE are high mainly in the US and for large caps
- This comes, for me, from the huge cash inflow to the US (from US citizen but also from foreign investors) + the concentration due to passive investing
I am not sure this is really sustainable but for now, this is a fact: markets are expensive
What do you think of PEG? I see more and more analysts using the peg ratio.
As I follow growth, EPS growh and PE, I calculate a PEG. In my small cap portfolio most of the stocks have a PEG under 1. Very interesting to be sure not to overpay. But for some stocks, PEG is not that relevant
Merci pour cet article ! Le PE ratio est un bon point de départ, mais il ne doit pas être utilisé seul. Il est essentiel de considérer d'autres facteurs, comme la croissance des bénéfices, la stabilité du secteur, ou la position d'une entreprise sur son marché. Comparer le PE d'entreprises du même secteur peut être pertinent, mais encore faut-il prendre en compte leurs spécificités. /********/Thanks for this article! The PE ratio is a good starting point, but it shouldn't be used on its own. It's essential to consider other factors, such as earnings growth, industry stability, and a company's position in its market. Comparing the PE ratio of companies within the same sector can be useful, but it’s important to account for their specificities.
Thanks for your feedback!
What metrics do you use when screening prospective stocks? Are there certain metrics and numbers you look at? Such as PEG, growth, ect.? Thanks
I always look at these metrics:
- Revenue growth
- Net profit margin evolution (I want stocks with improving margin)
- ROE / ROIC evolution (I want a decent ROE/ROIC consistently improving)
- PE and FCF yield vs peers vs growth (PEG) and vs history
- Balance sheet (I avoid too much debt)
- Share dilution / buyback
- SBC - I want a reasonable amount of SBC
Thanks for the response. What is SBC?
Stock based compensation. For some tech companies, SBC are about the value of FCF meaning the shareholder is left with... nothing!
Thank you!