Every resource I use to study a stock always seems to mention things like
- With a PE ratio of xx the market is pricing in complete perfection.
- The market is anticipating consecutive years of hyperbolic growth.
- Even a slight miss or underperformance in earnings could result in a big valuation reset.
The problem is I have actually gone back through several dozen companies that blew up and became house hold names and checked their stock performance when the PE ratios were high. And yes some of them did have 40% to 60% sell offs but some continued climbing for 18 months or so before selling off.
But the story is always the same, the multiples compress sure, but the revenue keeps growing, the profits keep growing, the margins increase, the customer count / quality increases, demand increases etc.
From my limited research it seems to me like getting in super early when the stock is richly valued can actually be better than waiting for the PE to settle. Yes you may end up sitting through a couple years of losses but in the long run if the company is successful, the price you bought in at will be a far better deal than the newly PE adjusted price.
Basically I'd rather invest at a $5b market cap with a PE ratio of 90 and risk losing some unrealised money for a few years for the company to become $70b, rather than invest at $40b with a PE ratio of 20. Yes a $40b market cap PE ratio of 40 is far safer most likely, but by the you've missed 80% of the bull run anyway…
Do you care if a fast growing company is over valued?
byu/AltruisticOwl156 instocks
Posted by AltruisticOwl156
8 Comments
One is a gamble and another is investment.
Plenty of hyper-growth companies can crumble and die, so you can just lose your money instead of eating unrealized losses for a few years.
Also while you’re eating unrealized losses for a few years, you could just make steady growth with low risk by investing in companies that have already proven themselves.
If you believe the company can grow into its valuation. Then it’s not a bad bet. But the problem is most companies don’t.
People will point to Netflix and Amazon but those are outliers that survived and thrived. They had amazing management, execution and some luck. Not everyone will be like them.
For every Netflix and Amazon, there’s probably hundreds or thousands of failures like Peloton and zoom and others who couldn’t keep their growth rate.
Price to earnings is not telling me what a company is worth if I was to strip all of its assets and add up their individual values. I would also be more interested in the sales growth percentage and the earnings growth percentage per year.
A company with a PE ration of 8 with a negative earnings growth as well as a negative sales growth that pays a decent dividend is not a company I’d be interested investing in especially if the company is trading at a value that is higher than the company is worth.
pe ratio of xx” is not the problem, my entry was. “pe ratio of xx” is not the problem, my entry was. i bought a name at 40x sales once, it ran for months, then one small miss nuked it 35% in 2 days. now i only pay up when the trend is clean and my size is small. are you asking as a trader or long term holder?
To a reasonable degree no, but I do like to try to get into themes relatively early. I was one of the few people on here talking about data center power in early 2024. If something is expensively valued and up 1,000% in two years, I’ve missed out (maybe not entirely, but to a meaningful degree) and at that point any negative news (slight miss, etc) could be a real rug pull. That doesn’t mean that I wouldn’t potentially consider a position, but would be sized accordingly.
“But the story is always the same, the multiples compress sure, but the revenue keeps growing, the profits keep growing, the margins increase, the customer count / quality increases, demand increases etc.”
Not always the same. It’s easy for even low/lower quality stuff to get swept up in a popular theme and then stuff happens like what happened with POET yesterday where the stock is down almost 50% in a day because management is incompetent. Stuff like RSLV that people think is something because it has AI in the name.
Lot of stuff is a fad or temporary hype. Someone else mentioned Peloton. Rivan going public at a $100B valuation before they’d even sold a car because of an EV bubble within the larger 2020/21 growth bubble.
So yes, I will consider an expensively valued fast growing stock if I think it’s still reasonably early and there’s a lot of runway. I don’t want a portfolio full of these though and one still has to really consider the sustainability of the growth story in each and every instance.
Yeah, but it changes what I need from the business. A great company can still be a bad stock if the price already assumes perfection. The faster the growth story, the less room there is for even one ugly quarter.
I checked whats most hyped on reddit , and yeah, to late or risk or follow the crowd ?1. RKLB — Rocket Lab 🚀
Reddit’s #1 pick. Stock up 360% in 2024, +174% in 2025. $1.1B backlog, $977M cash, 95% YoY launch revenue growth. Neutron rocket upcoming as major catalyst. Risk: not yet profitable, high valuation.
2. ASTS — AST SpaceMobile 🛰️
WallStreetBets conviction play. Building satellite broadband direct to your phone — no cell towers needed. $70.9M revenue in 2025, guiding $150–200M for 2026, $1.2B in contracted commitments. Risk: recent satellite failure, SpaceX/Amazon competition heating up.
3. IONQ — IonQ ⚛️
Top pure-play quantum computing stock. Revenue grew from $2M (2021) to $130M (2025). Analysts expect 67% CAGR through 2028 ($600M target). Holds world record for quantum accuracy (99.99% fidelity). Risk: unprofitable, ~23% of float shorted, highly speculative.
4. LUNR — Intuitive Machines 🌕
NASA-contracted lunar lander company. Part of Reddit’s space economy basket (alongside RKLB, ASTS, PL) seen as a trillion-dollar industry in the making. Government contracts provide a backstop. Risk: tiny company, high execution risk, NASA-dependent.
5. NBIS / AI Infrastructure 🤖
The “picks and shovels” play on AI. Companies supplying power and physical infrastructure as AI energy demand explodes. Also watch: IREN, APLD. Risk: sector still early, profitability timelines uncertain.
Ich bin mal in Voyager digital eingestiegen. Die hatten ca. 500 Millionen wert.
Das war eine Krypto bank mit 1000% ebitda Steigerung year to year.
Ging bei der ersten Krypto Krise kaputt.
Das wichtigste Gerade im KI Chip Hype sind Burggraben und Patente. Und natürlich Umsatzsteigerungen aber die kommen automatisch weil alles teuer wird.
Hat die Firma etwas so tolles das der Markt es unbedingt haben möchte, und kann es nicht einfach ersetzt werden?
Wie Apple damals einfach Varta ersetzt hatte.