The main example of this are car makers (oil, utilities, shipping might also be examples). These car makers in the long term maintain or grow their earnings, yet you could have bought them many years ago at a p/e ratio of 5, and with dividends reinvested would have gotten like 10% per year, not 20%+ as the p/e ratio would suggest.
After all a company with constant earnings at a constant p/e ratio of 5 should get you 20%. My economist dad says there’s no way that’s possible, but we can see it’s true that many companies as mentioned above break this eule routinely in a major way. Some mention the heavy need for capital, but that should be long term redlected in earnings, as the investments are written off. (According to my father).
Is it explained by them spending money badly?
That doesnt make sense as they could just pay dividends.
Can any smart people explain how these companies can maintain low p/e ratios in the long term?
After all a company with constant earnings at a constant p/e ratio of 5 should get you 20%. My economist dad says there’s no way that’s possible, but we can see it’s true that many companies as mentioned above break this eule routinely in a major way. Some mention the heavy need for capital, but that should be long term redlected in earnings, as the investments are written off. (According to my father).
Is it explained by them spending money badly?
That doesnt make sense as they could just pay dividends.
Can any smart people explain how these companies can maintain low p/e ratios in the long term?