Re:Yes it's a bubble, so what?
by refurb on Thursday April 26, 2018 @08:42AM
(#16931303)
Not saying the quote's depiction is accurate, but I like the way that the stock price is connected to a future state. Much easier to understand than "the PE ratio is too high".
[ Parent
| on HN ]
Re:Yes it's a bubble, so what?
by AnimalMuppet on Thursday April 26, 2018 @11:40AM
(#16932862)
The stock price is always connected to a future state. The PE ratio is one way to think about that connection. But if the future state is going to be amazing, then the (current) PE isn't really a relevant number. The PE only works if there's normal continuity between the current state and the future.
Or rather, the PE only doesn't work if there's a large discontinuity between the current state and the future. If the amazing future isn't going to show up, then you're left with "the PE ratio is too high".
stock price is the market consensus on the current value of all future cash flows to the firm (in a wisdom of the crowds kinda way). stock price getting disconnected from that underlying basis is one way to define a bubble.