Does Valuation Matter?

July 4, 2008

Trader Mark submits:I always wonder about this valuation thing - at times it simply seems
all that matters is what people want to buy (relative strength) and
valuation means nothing. Case in point, I’d like to show you two stocks.

#1 is a fund holding we’ve had for a long time - Illumina (ILMN).
I never have it as a major position - it usually sits around 0.5% to
1.25% of the portfolio because I always think it’s “too expensive”. I
rarely talk about it other than around earnings.
I’ve been watching it act incredibly well during this correction -
living in its own universe. It’s not sexy and it never makes our “top
gainers for the week” but the chart over the long run is fantastic.
Valuation? Ridiculous. Forward P/E ratio of 75 on $1.20 of 2008 full year estimated earnings. That doesn’t matter - all it does is go up. [Dec 20: Nice Writeup on Illumina]
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