Waiting for a low P/E is not a mistake in principle, but history shows it often fails when used as a universal rule across very different types of companies.
Amazon is one of the clearest examples. During most of its major compounding phase from the early 2000s through the late 2010s, it often traded at very high earnings multiples that traditional valuation screens would have rejected. At times it looked extremely expensive on paper, yet revenue growth and reinvestment cycles were driving long term compounding that valuation models did not capture well.
Microsoft in the Satya Nadella era shows a similar pattern. After 2014, the stock was often considered “fully priced” or even expensive on forward earnings, yet the shift into cloud created a multi year compounding cycle where earnings kept expanding faster than valuation compression.
Netflix also followed this pattern for a large part of its global expansion phase. Between roughly 2013 and 2018, it regularly traded at high multiples while subscriber growth and international expansion were the real drivers of returns. Waiting for a low multiple during that period meant missing most of the move.
But there are equally important cases where high valuation was not justified and waiting for lower multiples would have been the correct discipline.
Cisco in the early 2000s is a classic example. It reached extreme valuations during the dot com period based on expected internet infrastructure growth, but when demand normalized, growth slowed sharply and the stock spent years going nowhere despite looking “cheap” after the crash.
Intel shows a more gradual version of the same issue. It often looked optically inexpensive on earnings at different points after its dominance peak, but structural slowdowns in growth meant low P/E did not translate into strong long term returns.
This is the core distinction that matters more than the valuation number itself.
High P/E environments can be justified when a company is still in a long reinvestment and expansion phase where earnings are temporarily suppressed but future cash flow expansion is strong.
High P/E becomes dangerous when it reflects peak optimism in a business whose growth is already normalizing or structurally slowing.
This is why timing valuation alone often fails. The same metric can describe two completely different realities depending on where the company sits in its lifecycle.
In true compounding phases, waiting for low P/E often means waiting for the growth phase to already be over.
In mature or cyclical businesses, paying high multiples often means anchoring to unrealistic expectations that later compress.
So the real decision is not about cheap versus expensive, it is about whether the business is still in a genuine expansion phase or already priced as if it is.
Not financial advice