Question

Why do some companies such as Amazon deserve higher P/E multiples than others such as General Motors?

Answer 1

Amazon is a company which is still in its growth phase and is showing immense potential in its future growth. ie Investors considers amazon as a tech company which can guarentee high growth and increase in profitability due to its already established business. Eventhough currently Amazons online retail segment is in loss, investors believe that this will come to profitability in the near future.

As share market price is a reflection of a companys future cashflow potential, amazon is showing high Price to earnings ratio. Whereas for General motors, the industry is already in its maturity phase and cant guarentee no more drastic increase in its growth. Whereas future predicts a shift from traditional petrol vehicles to Electric vehicle. Considering these 2 factors , investors is not finding much value for General motors at this point of time. Hence the difference between these two.