Davis double-kill means that the valuation and performance both decline, and the stock price will also fall exponentially and sharply. Generally speaking, a company's growth rate and price-to-earnings ratio may not be a good match, because the factors that investors expect are mixed in the middle.
The expected increase in performance growth rate will often increase the market valuation, thereby double-strengthening the rise of stock prices. For example, a company earns 1 yuan per share, with a growth rate of 10%, a valuation of 10 times, and a stock price of 10 yuan. At this time, if an analyst spreads news in the market that the company has signed a large order and its performance growth rate will reach 20% next year, the price-to-earnings ratio valuation is likely to instantly increase to 20 times, and the stock price will become 20 yuan.
So we see that as long as the growth rate exceeds expectations and everyone thinks that the company is very profitable in the future, the stock price can rise sharply. Of course, on the other hand, it is more miserable. If the growth rate of 20% drops to 10%, the valuation is likely to fall from 20 times to 10 times, and the stock price will fall by half at once. What's even worse is that people later found that the company's large order was not signed at all. The real situation is that the performance growth rate even dropped to negative, and the earnings per share dropped from 1 yuan to 0.5 yuan. Assuming that the valuation fell from 20 to 10 times, the stock price would fall from 20 yuan to 5 yuan, a total of 75%.
This is the situation of Davis' double kill. So from this example, we should reflect. This is what Teacher Qi often warns everyone, that is, don’t buy popular stocks, and don’t believe in the myth of performance rising forever. Many companies with extremely high growth rates in the short term basically need to take a shower of performance in a few years, otherwise they will be unable to continue.
. When his performance is bathed, it often coincides with the overall market decline, so that it will not show any signs of the situation and will not delay industrial capital cashing out. But it only made ordinary investors suffer, the stock market itself plummeted, and their performance suddenly became bad, and in the end, people were scary. All the beauty often collapses overnight. For example, companies like Moutai could fall by half in 2013 because Moutai's performance had almost not increased that year.
and bought popular stocks with high price-to-earnings ratio. Even if there is no Davis double kill, the company's performance is still growing and still making money, which may cause you to suffer heavy losses. For example, if two stocks have earnings per share of 1 yuan, one grows by 5% per year and the other grows by 30% per year, then the market will give it a higher valuation for a fast-growing company. If the growth rate is 5%, it will be good to give it a 10-fold price-to-earnings ratio, while if the growth rate is 30%, it can generally give it a 30-fold valuation. So the stock price that was shown in the end was 10 yuan and the other was 30 yuan.
If the myth of growth in the second year is shattered and the second company does not grow by 30%, but only grows by 20%, then the market valuation will drop to 20 times, earnings per share will increase from 1 yuan to 1.2 yuan, and the stock price will become 24 (1.2×20), from 30 yuan to 24, a drop of 20%. So we see that this company is still making money and its performance is better than the previous year, but just because the growth rate drops, the stock price will drop sharply. Another company may still grow by around 5%, and the price-to-earnings ratio has not changed much, so the stock price is still so much, and it can even rise slightly.
Therefore, buying stocks with high price-to-earnings ratio is extremely risky, because it is easy to grow by 10%, but it is very difficult to grow by 50% every year. This is also the reason why Teacher Qi didn’t let everyone touch new energy last year. Many companies have a price-to-earnings ratio of hundreds of times. How high is this growth to support this valuation? Generally, popular celebrity stocks at a certain stage often have high price-to-earnings ratios, even getting higher and higher, which shows that market investors have too high expectations for them.
This is like when I used to just hope that my child would get a first-class exam, but now I have to go to Tsinghua University. With such high expectations, my child may be very disappointed after taking the exam for the senior high school entrance exam. It’s not that the child is bad, but that it’s not as good as you imagined. Performance will trigger changes in investors' psychological factors, causing investors' expectations to fluctuate, resulting in an increase and decline in market valuation. Therefore, sometimes the company's performance may not be poor, but it is not as good as everyone imagines, but this is enough to be fatal.
High growth companies can easily come to an abrupt end at a certain point, and then their growth will decline. Even if their performance does not deteriorate, their valuation will fall and the decline in stock prices will not be small. If the performance is worse, it will be a complete double-killing Davis, and the stock price will fall by 7-8. So don’t invest when the market expects too high. When everyone is optimistic, even if the market valuation is not high, the performance may be overvalued. To sum up, Davis' story tells us that
first, don't buy stocks at the top of the valuation
second, don't buy stocks with gradually declining performance
third, and don't buy stocks at the top of the valuation valuation , buy stocks with good performance .
Because after particularly good performance, it often means that it will gradually decline. We should try to find stocks that seem pessimistic now and have low valuations, but are actually growing. Investing requires some reverse thinking, and things that no one wants to buy will be cheaper. The things that everyone rushes to grab must be very expensive. The more people rob, the more ruthless they will be in the future. Tomorrow we will talk about the value trap and growth trap? How to avoid falling into these traps? See you
tomorrow-
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