mardi 27 octobre 2020
jeudi 22 octobre 2020
FWD PE under 10: Don't touch that stock;
FWD PE between 10 and 15: That stock won't probably rise that much but there may be a few exceptions among the group;
FWD PE between 15 and 25: Good place to look. Very few stocks with an explosive growth, but possible to achieve 10-15% every year with a good selection;
FWD PE between 25 and 35: Usually, some very solid companies in that range. A good place to look if you're sure that you've found an exceptional company that did well for the last 5-10 years;
PE between 35 and 50: Very expensive territory but some explosive growth there;
PE over 50: Speculative territory. Some ultra-growth stock there, but very tough to fully understand what the future could be.
Let's take a look at The Trade Desk (TTD). When I first bought the stock, it was already expensive, probably selling for something like 50 or 60 times next year's earnings. But the growth was great and the stock had almost everything I was looking for.
Recently, TTD hit 600$. The forward PE is now about 150. So I decided to sell my shares. Because how can someone be comfortable with such a forward PE ratio? I mean, even with a PE of 15 or 20, we're never sure about the exact value of a specific stock. When the PE is over 100, the margin of error is very high. It doesn't mean that the PE won't expand even more. But it means that you're in the fog. And my conception of an investor is someone who knows what he owns and is able to value it.
Last summer, my friend reminded me that I told him to stay away from Tesla though the stock more than quadrupled since the beginning of the year. I told him that the FWD PE of the stock was already extremely high before (something like 80-100) and it's now 130 while the current PE ratio is over 1000 (!!!!!). My commentary was that even if the stock performed incredibly well, it was even less rational to own it now than before.
I strongly believe that we must be able to fix a limit above which we can't keep a stock anymore. Otherwise, investment is only a question of feeling and it may even become some kind of irrational love.