Buy in fear: declines are short and rallies are long

An independent exercise, not a statement by the video creator or verification of every claim in the video.

Revenue growing fivefold does not make the share price grow fivefold

This hypothetical annual calculation uses consistent monetary units. Initially revenue is 100, the net margin is 10% and the share count is 10, giving net income of 10 and earnings per share of 1. Assuming a price-to-earnings multiple of 20 gives a share price of 20. Later revenue rises to 500 with the same 10% net margin, but a share count of 20 and a multiple of 12 give net income of 50, earnings per share of 2.5 and a price of 30. Revenue and net income grow fivefold, earnings per share by 2.5 times and the assumed price by 1.5 times. Substituting operating profit for net income or omitting share-count and multiple changes alters the growth-to-price connection.

Check for yourself

1. Are the profits being compared operating profit or net income attributable to common shareholders for matching periods?
2. Are dilution and cyclical changes in earnings and valuation multiples reflected?

Limits of application

This is arithmetic under hypothetical assumptions, not a fair-value or target-price calculation for an actual company. Net margins and multiples are arbitrary, and net cash, debt, preferred shares and exceptional items are not modeled separately. It neither dismisses revenue growth nor recommends a trade.