Displaying items by tag: valuation

Friday, 22 October 2021 17:43

ESG is on the Verge of Bubbling Over

Environmental, social, and governance investing drew in almost $35 trillion last year and that number is expected to grow another 42% by 2025, and while those dollars might be better for the environment the large inflows from unseasoned investors are pushing ESG into a price bubble. Large inflows are can disregarding traditional financial discipline which can affect debt/equity ratios, dividends, and distort valuations for future mergers and acquisitions. New companies in the onset of their financial growth are already being evaluated at 15 times revenue, on top of that investments in the traditional sector are suffering as outflows continue this could cause supply shortages and further inflation. Continued inflows into ESG could swell the bubble further and risk a collapse.


FINSUM: ESG could be swelling into risky territory, investors should be cautious particularly with retirement vehicles.

Published in Eq: Tech
Thursday, 09 September 2021 19:16

You are Overlooking a Great Value Play

(Rio de Janeiro)

Emerging markets make up a fraction of US investors' portfolios even though they account for a quarter of global stocks weighted by market value, and they are one of the most important tools to beat the markets moving forward. The biggest factor driving the divergence in emerging markets and US markets has definitely been earnings, which has pushed the gap to its widest levels in the last two decades. However, earnings aren’t the only component of stock valuation. Dividend growth is expected to double up on US markets with 3% as compared to 1.4-1.5% in the U.S. Meanwhile, emerging markets are trading at a ridiculous discount as their P/E is about 12x where the S&P 500 is an average of 20. The common ratio of P/E to expected earnings growth and dividend yield favors emerging markets, which is already assuming high earning growth for US stocks. Finally the last time the gap between emerging markets and U.S. stocks was this bad the EM went on to beat the S&P by 14% over the next 7 years.


FINSUM: This is the perfect opportunity to move abroad because presently the discount is just unjustified for emerging markets.

Published in Eq: EMs
Thursday, 15 July 2021 17:34

Are ESG Stocks in a Bubble?

(New York)

There has been rising anxiety of late that the growing assets in ESG stocks have created a valuation bubble in the most popular shares in the category. The idea is that rush into ESG has funneled a ton of capital into a relatively small group of shares, “artificially” inflating valuation. However, the Financial Times argues that there is definitively no bubble in these stocks. In fact, they are not valued any more richly than any average basket of shares. Overall, the average PE ratio of a global basket of ESG stocks is the same for an average basket of all stocks: 14x.


FINSUM: This is actually quite a relieving study, as there have been some very lofty AUM growth figures thrown around lately for ESG. And in case you are nervous, the same metrics/comparison listed above also hold for US/domestic ESG stocks.

Published in Eq: Tech
Monday, 23 November 2020 08:55

Are Big Tech Companies Overvalued?

(San Francisco)

One of the questions swirling in the back (or front!) of investors’ minds is whether big tech megacaps are overvalued. They have had a stellar run this year and are trading at rich multiples, which has led to fears of overvaluation. On the other hand, they still seem like they might be the best growth play in the market. At the end of September one could argue things had gotten out of hand. FAAMG stocks were trading at 35x earnings while the rest of the S&P 500 was at 12x, the widest gap since 2000. However, since then fortunes have reversed, with the spread now only 31x to 20x.


FINSUM: So the big question is whether the shrinking of the spread means there is margin for FAAMG growth, or it is a part of a larger trend towards valuation parity? We think it depends on the regulatory path that new administration takes.

Published in Eq: Tech
Monday, 06 January 2020 11:24

Time to Get Aboard the Amazon Rocket Ship

(Seattle)

Yes, Amazon looks expensive and has seen massive gains in recent years. This makes many fearful of the stock. But the reality is that the stock is a free cash flow rocket ship that is going to keep surging higher, according to 47 of the 49 Wall Street analysts who cover it. Amazon trades for 69x 2020 earnings, but it still looks pretty inexpensive on a free cash flow basis. The company’s past growth initiatives are now paying off, which means Amazon is throwing off free cash flow in a big way.


FINSUM: Amazon has averaged a 35% gain per year since it went public. We don’t see any big reasons why it cannot continue this year.

Published in Eq: Growth
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