In Search of the Next Multiplier Stock

     On Wall Street, people often refer to a company’s multiplier. It is simply the stock price divided by the earnings per share. Some refer to it as “P/E” or “Price Earnings Ratio”. It is the number by which you multiply the current earnings per share to get the stock price. If a stock earns one dollar per share and the stock price is 50, then the earnings multiplier is 50. It also answers the question , ” How much am I paying for earnings when I buy a stock?”

     A multiplier is an important part of financial modeling as it is used by an analyst to arrive at a price target. For that reason, the first paragraph was worth understanding. I’ve never put much effort  into financial modeling as I have never seen a model that can quantify emotion. There are some sentiment indicators that attempt to predict expected consumer behavior. Human emotions and behavioral finance play such a large role in investment decisions that I don’t think you can overlook them.

     For the sake of this post, none of that stuff matters. When I talk about multiplier stocks, I’m talking about stocks that have the ability to multiply in price again and again. For that to happen, a company has to be the first to a new space or become the best in a space. Apple’s (AAPL: NASDAQ) iPod, Priceline’s (PCLN:NASDAQ) room rental platform, Netflix’s (NFLX:NASDAQ) streaming, Google’s (GOOGL:NASDAQ) technology, Facebook’s (FB:NASDAQ) ability to connect people. These are all examples of companies that were first in space and remained best in space.

     But where does the next multiplier stock come from? We have seen a little bit of a slowdown in game changing innovative products. Each new iPhone that Apple introduces has a very small, incremental increase in the technology but nothing game changing. Samsung was gaining on Apple rapidly until they literally and figuratively “lit themselves on fire”. Apple has a chance to make another generation of investors wealthy if they can be the first in the space with new abilities to monitor certain aspects of health. Take the recent stories of their glucose sensor in the Apple Watch. That’s a game changer and only the tip of the iceberg with what can be done to help a personal monitor their health. Apple is on my list of potential multiplier stocks.

     What about Amazon? Amazon operates on such razor thin margins that it makes one wonder if they will ever turn in a profit number capable of catapulting the stock even higher. Their willingness to invest in new lines of business at the expense of current net income leads me to the conclusion that they aren’t a multiplier stock any time soon. 

   Tesla (TSLA:NASDAQ)? The jury is still out on what the potential exactly is for their product line, other than hype and cult status.

     Netflix (NFLX:NASDAQ) Netflix has some serious competition from Amazon’s (AMZN:NASDAQ) Prime Video, Hulu and several other providers of streaming entertainment. The winner there will likely be the one with the best original programming. I don’t see Netflix with the potential to go appreciably higher from here unless there is a legitemate takeover story.

     Can Facebook be the next stock to multiply in value? I think so. I’ve never been shy about my optimism for the company and its ability to generate revenue. Facebook is also operating from a position of dominance, most recently demonstrated with their replication of Snap’s major revenue gainers with Instagram Stories. Facebook has shown an interest in the live streaming of events. They were also among the first to demonstrate a future for virtual reality. Don’t be surprised if, someday soon, you are watching your favorite sports team live on Facebook, while wearing virtual reality gear that makes it seem as though you are sitting in the front row.

     Apple and Facebook are definitely at the front of the next technological innovations.

    Then there is Alphabet (GOOGL:NASDAQ) Alphabet aka Google will be among the first, if not THE first company to bring a non invasive glucose sensor to market that can actually be relied upon. They have YouTube that they are just beginning to monetize and attract the best engineering talent in the world.This stock could multiply.

DISCLOSURE: This article was written for informational purposes only. It is not intended as investment advice and should not be relied upon as such. Consult with a qualified financial advisor or tax professional to determine the proper investment plan for you and your circumstances. I do not personally own or plan to purchase any investments spoken of here