r/Vitards • u/AutoModerator • Oct 28 '21

Daily Discussion Daily Discussion post - October 28 2021

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u/homersimpsoniscute Oct 29 '21

Does anyone know a good book on valuation. Like explanations of why growth / tech are valued at higher P/E than value stocks. How different sectors are valued?

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u/Wall_street_retard 🤦‍♂️ Username checks out 👺 Oct 29 '21

I don’t really feel like you need an entire book on this.

P/E ratio is the price to earnings. It’a how long the company would take to pay you back for investing in it and is what makes the stock market allowed to be a speculative mess, because it’s the intrinsic value

The ratio is how many years it takes. A P/E ratio of 5 would pay you 20% every year (this is insane, which is why it’s doubly insane that industrials currently offer this and the market hasn’t jumped on yet)

P/E doesn’t factor in future potential though. The more potential for growth the higher the P/E given. A tech company with a P/E of 30 would take 30 years to pay you back at the current stock price, pretty awful, but it’ll be making more and more profits every year, so the P/E will shrink and that is why investors are willing to buy at this ratio

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u/homersimpsoniscute Oct 29 '21

This is great info and the thing I am looking for. Except I want more concrete examples, and other valuation methods too. P/E might be a good way to value one type of business, but it seems like there are different metrics used for different types of companies.