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Multiple contraction is a b*tch ( $PLTR as an example )
At the peak P/S multiple (~68x), Palantir $PLTR revenue grew from ~$1.12B to ~$2B but P/S crashed to 9x.
Share price went down from ~$39 to ~$10.
The price we pay matters.
Sometimes this phenomenon points to an opportunity though!
Consider $MELI.
Since December 2020, MercadoLibre's P/S has gone from 25x to 5.8x while FCF went from $935M to $3.6B and the share price went from $1700 to $1300!
Ofc. Growth also slowed & interest rates went from 0%-5%, so different multiples at different growth projections and macro environments.
@rihardjarc, I Agree with you completely. The environment alone can dictate multiples alongside other factors.
@buyingyourtime But if the companies continue to deliver and the valuations were not way off good companies tend to grow into their multiples.
@rihardjarc It's almost another layer to factor when looking at the investment case, and I think its a layer often overlooked.
@buyingyourtime For sure, but it's hard to model; even if you model correctly the company trajectory, a significant change in macro can ruin your thesis. (like we had in 2022).
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