Well, Thoughts started flowing after reading a discussion about a amazing retail chain business which listed recently.
Why a company gets 100 PE?
Let me reserve copy rights of 100PEEliteClub™, PEPie™ & Greatness-Factor™ first.
Greatness-Factor™ might be well written and researched. Will talk later.
Why a company gets 100 PE? It has to have Greatness-Factor™ first.
Can we think in this way:
A Segment gets 100 PE based on opportunity size, tailwinds and sustainability in foreseeable future.
A pioneer, first mover, trend setter and leader is the segment will get entire pie of 100 PE.
This will attract competition. A copycat replicates the model or try to.
So, Now 2 such business will divide PEPie™, and will trade on 50PE.
This will attract more competition.
So, Now 4 such quality business will divide PEPie™, and will trade on 25PE.
This will attract more competition. and then, Segment equity will dilute, will have rat-cat fight, throat cutting competition, degradation in quality, derating and finally start of Consolidation phase.
Much more. Look around Telecom, Infra and so on.
Who said: Investing is easy? Its simple, stupid. Read the blog title, I am the Stupid!