What are reasons why companies with lower growth and lower g...
What are reasons why companies with lower growth and lower growth prospects can have higher PE ratios than companies with higher growth?
For example, Domino's Pizza and Costco have PE ratios of about 41 and 47, whereas Facebook and Alphabet have PE ratios of about 24 and 28.
Facebook and Alphabet have historically had higher growth and have higher growth expectations so what could be the reason behind the large difference in PE ratios?
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Cully : Great question honestly. My personal opinion is that stocks like Dominos and Costco are viewed as safer, more predictable, and less fragile to regulation than FB and Google. Sometimes investors view tech companies random initiatives as frivolous and a drag on their stock.
Jacinthen : They have lower risk, as in they will supposedly lose less value in a downturn than Meta or Google. This is clearly indicated by their beta, they have around .5 while google and meta have more than 1. That's worth a premium, at least the market seems to think so. IMO both Domino's and Costco are overvalued...
PandaMoo : I'm wondering if this is the answer..
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Could it be any relation with their assets?
These "low-growth" companies have physical assets that can be easily valued or sold (extrinsic value) - if somebody wants to buy/take-over it, doing M&A, or (almost impossible) file for bankruptcy. More stable, I suppose... except there are some legal claim or consumers issues.
While on the other hand, those " high-growth" companies are usually quite nimbles, they don't have much physical assets. So their business performance, revenue-profit/loss-expansions, or market sentiments (and maybe the big stock players) that "control" their stock price.
Abive is my fifty cents view, you may put some or much grain of salts on it...