When Should Fundamentals Be Ignored?
(Click on image to enlarge)
Should you ignore valuation because the foundations will be so strong in the future that it doesn't matter what the price is?
A stock trading at a multiple of 10 times or more its revenue could still provide a profitable investment.
The likelihood of companies trading at more than 10 times sales is much more significant, though.
The long-term real returns to a portfolio of companies trading at 10x sales or higher against the general stock market are shown in this GMO exhibit.
(Click on image to enlarge)
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Disclaimer: These illustrations are not a solicitation to buy or sell any ETF. I am not an investment advisor/broker
GMO study...
https://mcusercontent.com/6750faf5c6091bc898da154ff/files/8a6917c2-c8a3-ee27-1cbb-1d2e70bbb098/20210908.IF.Q2Letter.GMO.pdf?utm_source=PAID+The+Idea+Farm&utm_campaign=31a2e7d094-EMAIL_CAMPAIGN_2017_12_20_COPY_384&utm_medium=email&utm_term=0_ac58d173d8-31a2e7d094-412051737
What is the conclusion drawn from the GMO exhibit regarding the long-term real returns of a portfolio of companies trading at 10x sales or higher against the general stock market?
You should still consider such stocks but there is limited upside.