You can be cautious when investing in companies with high price-to-earnings ratios as some standard metrics are rising from all-time highs. But that kind of thinking can cost you money.
Companies with high P / E valuations can continue to increase sales quickly, boosting earnings in the process. And that could lead to higher share prices, despite the S&P 500
to hit new highs on April 6 and the Nasdaq
hit new highs on Feb. 19.
The timeframe discussed is a minimum of two to three years. This period is expected by economists and investment analysts to show the return of the economy and the recovery of corporate income. Meanwhile, the Federal Reserve has pledged to keep interest rates very low.
Below is a list of stocks with P / E ratios (based on current share prices) that will drop significantly over the next few years if analysts’ estimates are correct.
For 5 years to April 5, shares of Amazon.com Inc.
has increased by 451%. Let’s see how high the stock’s price-to-maturity ratio was:
Those forward P / E ratios (based on 12-month rotating consensus estimates among analysts polled by FactSet) are consistently high for Amazon, when compared to the SPDR S&P 500 ETF Trust. .
and Invesco QQQ Trust
The forward P / E valuation of the two ETFs is much lower than that of Amazon, although they have risen sharply from the previous two years.
You may have been warned to stay away from Amazon stock at any time since the e-commerce company went public in 1997. That would be a mistake, given the stock market is growing rapidly. with a high P / E valuation.
As with Amazon, a company’s earnings can go awry when it comes to pricing research. Earnings can vary widely, especially if a company is emphasizing reinvesting in the business rather than showing profits. Amazon’s annual revenue grew at a compound annual growth rate of 29% from 2015 to 2020. The company recorded annual profits during that period, but most recently 2014 reported the net loss of $ 241 million on net sales of $ 89 billion.
The stock’s investment screen has a high P / E
Nasdaq-100 is made up of 100 of the largest companies in the Nasdaq Composite Index by market capitalization, excluding financial firms. That means it’s focused heavily on tech companies and other fast growers.
The following screen is based on consensus sales estimates polled by FactSet via the 2023 calendar, but it excludes 11 2023 estimates that are not available. Monitors also rule out any companies that expect a decrease in annual sales or net losses in 2021, 2022, or 2023.
That brings the original list down to 77 companies. Here are the 25 companies that are expected to achieve the highest compound annual growth rates in sales over the next three years, with their current forward P / E and estimated current price ratios. Calculate the earnings per share in 2023 and 2023:
Continuing to discuss Amazon, you can see that analysts predict the company’s sales growth will slow down at an annual rate of 19% over the next three years, but it’s still a Very impressive growth if it is maintained. And the company’s current share price to 2023 estimated EPS of 34.8 is not too high for a fast-growing business.
Get the list from scratch, for MercadoLibre Inc.
and Peloton Interactive Inc.
you can see that the two-year forward P / Es based on current prices is still very high, as is the P / Es of Zoom Video Communications Inc.
and Tesla Inc.
and even Netflix Inc.
which has been expensive for many years.
But that’s when you need to do your own research.