Please confirm my understanding. "earnings grows faster than p/e multiple": the earnings of the company or the stock are increasing or accelerating, and the share price is not catching up with this reality. Vice versa, "p/e multiple grows faster than earnings" : the share price (P) is growing faster than the earnings per share (EPS) wich are declining or stagnating, so that price are not reflecting this reality. Thank you very much
Valuation via PE is some type of premium for the underlying earnings that the market is expecting. So a stock could have a huge run up via valuations and then later have earnings realize which brings the PE back down.
So it’s about decomposing what the market is pricing exactly.
I wouldn’t think about it as the stock not reflecting reality. I would think about it as the market is taking a view on a specific future reality.
Please confirm my understanding. "earnings grows faster than p/e multiple": the earnings of the company or the stock are increasing or accelerating, and the share price is not catching up with this reality. Vice versa, "p/e multiple grows faster than earnings" : the share price (P) is growing faster than the earnings per share (EPS) wich are declining or stagnating, so that price are not reflecting this reality. Thank you very much
Trying to understand your question exactly.
Valuation via PE is some type of premium for the underlying earnings that the market is expecting. So a stock could have a huge run up via valuations and then later have earnings realize which brings the PE back down.
So it’s about decomposing what the market is pricing exactly.
I wouldn’t think about it as the stock not reflecting reality. I would think about it as the market is taking a view on a specific future reality.