Why are the price-earnings figures for technology companies so high when profits are falling? (2024)

Simon Black 11 months ago |Following[–]

Naturally, price-to-earnings ratios will be larger if the denominator, E, is smaller. It's just plain old math.

The way to lower the price-to-earnings ratio is to lower the price or increase earnings.

If you think the price-to-earnings ratio is just a nice magic number for novice investors, then the price-to-earnings ratio is the number of years it will take for the stock to return the price you paid for it. That is whyfewerK/W andbetterhe shares the share.

Dierenmuppet 11 months ago |last|Following[–]

P/E ratios for technology companies are based on expectationsfutureincome. I mean, this applies to all businesses, but technology in particular expects huge future revenues.

A decrease in current earnings does not necessarily affect the price. It depends on whether people still expect the same future income. If they do, the price/earnings goes up because P stays the same and E goes down.

sharemywin 11 months ago |Older|Following[–]

but where does the 'expectation of future income' come from? Is it just technical momentum? Is there a story I'm missing?

Are there markets they want to take over that they don't yet have a significant share of?

Dierenmuppet 11 months ago |fishing|Older|Following[–]

Well... the market makes about the total of someatthinker (weighted by how much money they have behind their opinions). Originally, technology stocks had high price-to-earnings values ​​due to expectations of future revenue growth. Now they have high price-to-earnings ratios because everyone expects them to have high price-to-earnings ratios... or maybe because everyone expects everyone to have high price-to-earnings ratios.

sharemywin 11 months ago |fishing|Older|Following[–]

so basically a bubble

sharemywin 11 months ago |last|Following[–]

Have they not reached a saturation point? Will they continue to outperform the economy as a whole?

Taylorbuley 11 months ago |last[–]

Technology companies have always maintained unique price-to-earnings ratios that reflect investor confidence in their future prospects. if the numerator, the price, rises at a level greater than the relative drop in profit, the number keeps getting bigger