2024-02-26 06:19:25 ET
Summary
- The Roundhill Magnificent Seven ETF holds an equally weighted portfolio of the Magnificent 7 stocks, rebalancing on a quarterly basis.
- The Magnificent 7 have seen a decline in their valuations, but when stock-based compensation is included, they trade at combined price to free cash flow ratio of 50x.
- There is a strong tendency for large stocks to trade at low multiples to reflect natural tendency of growth to slow once companies reach the leading position in their industry.
- The surge in retail interest in mega cap stocks is reminiscent of that seen at the 2021 top, and reflects speculative interest that can easily be rewound without notice.
The combined market cap of the Magnificent 7 stocks is now equivalent to almost 50% of GDP, which is more than the figure for the entire S&P 500 at the 2009 low. Despite strong gains, their valuation multiples have fallen markedly over recent months, leading some analysts to believe that they are undervalued given their high growth rates. However, if we add back the impact of surging stock-based compensation, this group of stocks still has a collective price to free cash flow ratio of 50x. This is an extremely high multiple to pay for companies that are already huge and likely to grow little faster than GDP growth over the long term....
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MAGS: The Magnificent 7 Are More Overvalued Than You Think