The Investment Thread

UncleTrvlingJim said

I fundamentally disagree with the notion that PE rations mean less for tech stocks. Yes, you have to take into account their growth potential, but at the end of the day, a company's value is driven by their profit margins and ability to grow those margins.

So, while a PE ratio of 15 might be low for a tech stock, one with a PE ratio of 60 is probably way out of whack. It assumes exponential growth for many years, which is unrealistic given that major economic shocks tend to happen every 7-10 years.

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PE Ratios cut to the core of economics 101. Something that bubbles are really good at distracting people from. Whether it be complex products or simply feeding off of FOMO the simple ideas of supply and demand, money supply and basic pricing structures get thrown out the window.

For anyone that says PE ratios do not matter I present a really easy scenario.

Pretend you are buying a business. Are you going to ask for financial records and look at the company's earnings, revenue and profit and compare it to expenses? Saying PE ratio doesn't matter is like not asking for those records. When you are buying stock you are buying a company.