Subject: Re: OT: big companies
If you pay today over 15 times what the earnings turn out to be a decade later, you'll have a poor return with very high probability.
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That might be absolutely correct, but I think wasn't the point of mechinv. Instead it was the impossibility to estimate for an individual(!) Tech company what a decade later those earnings might be, based on "average of trailing and forward numbers - - - a plausible estimate of what's going on right now.". That this technique in the world of Tech simply does not work to "measuring a firm based.... on its price to FUTURE earnings ratio--many years out".

That's certainly a reasonable point for a young firm whose profit-making years haven't really started, or whose business model hasn't settled down yet.
But I don't think that can be applied to the big 7 I mentioned, all of which are over 20 years old.
Four are mature and very profitable (AAPL MSFT GOOG META).
The three others are also into their profit making years (TSLA, NVDA, AMZN), but it seems that much more profit growth is anticipated based on current valuation levels.

For firms well into their intended operating mode with a real business model and real net margins, there is no particular problem using current earnings as the baseline for estimating an earnings growth rate.
Only Tesla is still a bit early in their profit making history, and only Amazon has a recent net profit margin under 13% (due to the nature of the retail business, not their corporate youth)
Certainly as a group there is no problem of a near-zero profit baseline causing mathematical difficulty talking about earnings growth rates meaningfully.
They each made many billions of dollars of profit in the last year, and collectively made $216 billion.

It's only because these firms ARE collectively mature and into their profit making years that I talked about an earnings growth rate, which I agree does involve having a reasonable and positive starting level.

The more general rule is simpler: no matter how young and unprofitable a firm is, the market price has to be in proportion to the buyer's anticipated distant future profits.
If not, then even many years of upcoming explosive growth in revenue and profitability still amounts to simple overvaluation.
If the future profits are paltry, to get a profit you will need the stock to be trading at a very high multiple of earnings in the distant future.
It doesn't pay to rely on finding such a buyer when the time comes, especially as about the only thing you know about that future firm is that its earnings trajectory has disappointed.

Jim