David Ross

Echiquier Global: Mythbusters Edition #1

I often hear a commonly repeated myth that US stocks, in general, are expensive and that the GAFA  stocks are extremely expensive.

This is fake news. People who say this are either completely delusional, total fools, or just plain liars and it bothers me enough that it keeps me up late into the night. In fact, as I will show you, GAF (we do not hold APPLE, so I will just talk about GOOGLE, AMAZON and FACEBOOK) stocks may be some of the biggest bargains available in the world today.

Echiquier Global is, first and foremost, a growth fund. Being a growth investor means investing in the future. The relevant measure is not what you are paying for today’s earnings, but what it costs you to get future earnings. With that in mind, I went compared all of the European stocks on our watchlist, plus some additional recognizable European names, to FACEBOOK and GOOGLE. I used consensus estimates from Bloomberg for all of the companies and what you will discover is that when it comes to paying today for 2021 earnings, the European stocks, except for RYAN AIR, are far more expensive than either FACEBOOK or GOOGLE.


What about AMAZON? AMAZON requires a bit more thinking than GOOGLE and FACEBOOK because of its complexity: it is both a low margin fast growing retailer with large cap ex needs as it builds warehouses with a high margin, high cap ex hyperscale cloud provider. Because of the large depreciation charges involved, looking at EBITDA is my preferred valuation. Again, looking out to 2021, we see the following:


Does this look outrageously expensive? Not to me.

So next time someone tries to make a broad statement like “GAFA stocks are too pricey”, don’t be a fool and fall for their lies.

Myth is Busted!