Australian industrial shares ex banks, most expensive since 1992
The slide below from Watermark Funds shows how in recent years (i.e. since 2014), the market has been getting more and more expensive (higher and higher Price/Earnings Ratio) even though the corporate profit growth was falling and falling ….. As Justin Braitling said, if a company is likely to continue to grow very fast, you do not mind paying a higher Price (eg higher Price/earnings ratio). But it the profit growth outlook changes to much less future profit, the value of the company is lower … and so you should be paying a lower P/E rato. As you can see from this chart, the prices of industrials ex-banks are at clearly their most expensive since 1992, yet their profit growth is near the lowest (except for the depths of the GFC).