Everything is valued based on growth - because capital gains tax is so much lower than income tax.
Share buybacks make this a lesser issue for megacap stocks with massive profits and margins.
When you're talking about two companies with small profit margins and profits (or negative profits / losses) - if Company A is growing much faster than Company B - the valuation comparison might seem ridiculous.
It's obviously a flawed analysis, because stock prices are unpredictable (and, to a lesser extent, future revenues and margins). But it should make it clear why growth has such a high multiple.
Share buybacks make this a lesser issue for megacap stocks with massive profits and margins.
When you're talking about two companies with small profit margins and profits (or negative profits / losses) - if Company A is growing much faster than Company B - the valuation comparison might seem ridiculous.
Here's a spreadsheet that makes it clear why the multiple on growth is so high when you consider tax and inflation: https://docs.google.com/spreadsheets/d/1Q00Y8PEyQaiahEvJN0Aq...
It's obviously a flawed analysis, because stock prices are unpredictable (and, to a lesser extent, future revenues and margins). But it should make it clear why growth has such a high multiple.