Read on Twitter
A company growing at 20% whose P/E contracts from 50 to 20 will deliver a 9.49% CAGR over 10 years.
Now, let's say the growth rate slows to 10% and the P/E goes from 50 to 20.
Now it's only a .37% CAGR.
Now, let's say the growth rate slows to 10% and the P/E goes from 50 to 20.
Now it's only a .37% CAGR.
Some food for thought:
$MSFT grew earnings by 10% in the last decade. The P/E is 36.
$AAPL grew earnings by 20%. The P/E is 36.
Both have been at a 10 P/E at different points in the last decade, so multiple contraction isn't outlandish - especially if growth slows.
$MSFT grew earnings by 10% in the last decade. The P/E is 36.
$AAPL grew earnings by 20%. The P/E is 36.
Both have been at a 10 P/E at different points in the last decade, so multiple contraction isn't outlandish - especially if growth slows.
Meanwhile, a company growing at only 5% whose P/E expands from 10 to 15 is a 9.34% CAGR over 10 years.
You do you.
You do you.
For me, I'd rather exercise some conservatism. Don't bank on multiple appreciation. Assume that the multiple will contract if it's pricey. Assume that a feverish growth rate will slow at some point.
