High P/Es aren't always red flags–sometimes they’re trail markers.
KEY TAKEAWAYS
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The P/E ratio is meaningless without context
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High multiples can be justified if growth expectations are strong
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Mean reversion doesn't always apply to dominant or innovative firms
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Comparing a hypergrowth company to an index is poor analysis
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Companies can shift what is considered “normal” valuation in their sector
MY HOT TAKES
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Don’t compare cheetahs to cocker spaniels
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High multiples are only scary if you don’t understand growth
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Valuation is forward-looking–and sometimes forever-looking–anything goes
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Some stocks earn the right to be expensive
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The market sets the value–but it doesn’t mean it’s right–but that doesn’t mean it’s wrong either.
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You can quote me: “If a company is dominating its market, that premium isn’t expensive–it’s deserved.”