Industry Valuation Metrics Go Out The Window For These 3 Stocks

Earnings per share, revenue, free cash flow, price-to-earnings ratio and debt-to-equity ratio are some of the most common metrics investors use to measure a stock’s value in the market. However, for a handful of unique growth stocks, traders can pretty much throw those metrics out the window.

Tesla Inc TSLA shares were down 5 percent on Thursday after the company reported a revenue beat and an earnings miss on the quarter. However, Tesla’s current market capitalization of more than $41 billion still puts the company at nearly the size of Ford Motor Company F. Tesla shipped 76,000 automobiles in 2016. Ford sold 171,000 automobiles in the month of January alone.

More Than Metrics

Tesla traders don’t care about the company’s aggressive cash burn, its negative net income or its extremely high market valuation. Tesla bulls are looking simply for sales growth. While 76,000 shipments in 2016 is a modest number, it is up more than 50 percent from the company’s 2015 total. At this point, Tesla traders can pretty much ignore earnings numbers and simply focus on the Model 3 rollout and total auto shipment growth.

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But Tesla isn’t the only stock on the market that trades to the beat of its own drum. Amazon.com, Inc. AMZN’s PE ratio is currently an absurd 173.9. Amazon bulls don’t care. The stock’s PE ratio has been above 80 since 2011. Amazon investors are after growth, something that Amazon has been able to deliver seemingly in perpetuity. Amazon Prime delivered 43 percent subscriber growth in 2016 and the company consistently delivers revenue growth in the 20-30 percent range. Investors don’t care about profits, they’re just along for the ride.

The same goes for Netflix, Inc. NFLX, which currently sports a 333.7 PE ratio. Last quarter Netflix reported its largest quarter of subscriber growth in history, sending the stock higher by 8 percent. The market doesn't seem to care that, based on PE and forward PE, Netflix stock is currently one of the 10 worst values in the entire S&P 500. Forget earnings and share price — Netflix trades almost entirely on subscriber numbers.

Growth Stocks

Growth stocks like Tesla, Netflix and Amazon may seem like an investors dream when they continue to go higher and higher, seemingly completely free from typical market valuation restraints. However, long-term investors would be wise to remember that the fairy-tale story for these stocks can only continue as long as they keep delivering the kind of staggering growth numbers that currently make them the exception to the market’s rules.