agreed, despite the growth stock's derating, using 2023 earnings they still need to correct by 10-20% to come closer to pre-Covid norms. To your point, a quality food/chemical ingredient company like Croda which was trading on 18-22* (using rolling 24m forward EPS), rose to 38* in Dec 21, now 30* with only mid single digit revenue & earnings growth. I suspect we may see a grind downward of lower highs & lower lows for a few months.
We certainly had QE for a very long time which expanded the multiples, hard to know when the party is truly over. CAPE Shiller is 2nd highest in history so you could be right for a grind down to the mean for the foreseeable.
When the PE of treasuries as 80* you can understand why FCF growth models were highly rated but if yields rise to 2.5% / PE 40* & liquidity weakens during QT then a derating towards normal historic levels is likely. If economies go into recession then perhaps we see them rerate but positioning remains long growth.
Great insight, Steve. I'm trying really hard these days to ignore the macro picture and focus on a bottom up approach to small caps, but it's impossible to ignore completely.
agreed, despite the growth stock's derating, using 2023 earnings they still need to correct by 10-20% to come closer to pre-Covid norms. To your point, a quality food/chemical ingredient company like Croda which was trading on 18-22* (using rolling 24m forward EPS), rose to 38* in Dec 21, now 30* with only mid single digit revenue & earnings growth. I suspect we may see a grind downward of lower highs & lower lows for a few months.
We certainly had QE for a very long time which expanded the multiples, hard to know when the party is truly over. CAPE Shiller is 2nd highest in history so you could be right for a grind down to the mean for the foreseeable.
When the PE of treasuries as 80* you can understand why FCF growth models were highly rated but if yields rise to 2.5% / PE 40* & liquidity weakens during QT then a derating towards normal historic levels is likely. If economies go into recession then perhaps we see them rerate but positioning remains long growth.
Great insight, Steve. I'm trying really hard these days to ignore the macro picture and focus on a bottom up approach to small caps, but it's impossible to ignore completely.