Core Viewpoint - The article discusses the valuation of growth stocks, emphasizing that traditional metrics like price-to-earnings (P/E) ratios may not be suitable during the early growth phase of a company, as they do not account for the dynamic nature of performance and market conditions [2][3]. Valuation Metrics - Price-to-sales (P/S) ratio is often used for high-growth companies that are not yet profitable or just turning profitable, while P/E ratios are more applicable to companies with accelerating earnings growth [2]. - The basic formula for P/E ratio is given as P/E = stock price / earnings per share or total market value / net profit [3]. Growth Phase Considerations - During the growth phase, especially in the early stages, it is inappropriate to discuss reasonable valuations based on traditional metrics like average industry valuations or dividends [3]. - The concept of safety margin is more relevant at the time of purchase rather than during the holding period, as future valuations may increase even if current valuations appear high [3]. Earnings Growth and Market Valuation - If a company has a current net profit of 1 billion and can achieve a compound annual growth rate (CAGR) of 20% over five years, its future net profit could range from 2 billion to 3 billion, leading to a market cap of approximately 40 billion to 60 billion at a 20x P/E ratio [3]. - If the market recognizes the growth potential and assigns a higher valuation of 30x to 40x P/E, the company's market cap could rise to between 36 billion and 48 billion [3][4]. Market Dynamics and Valuation Adjustments - The article highlights that during a bull market, when certainty about future growth is high, valuations may be driven up excessively, leading to a situation where earnings growth does not keep pace with rising valuations [4]. - The adjustment phase often follows a period of high valuations, where stock prices may decline significantly as the market corrects itself [4]. Industry-Specific Analysis - Different industries may exhibit distinct cycles, with some experiencing more significant adjustments during downturns, while others may have clearer recovery points [4]. - For commodity-related cyclical stocks, the cheapest valuations often correspond to market peaks, necessitating close monitoring of commodity prices [4]. Investment Strategy - The article mentions the "雪球三分法" (Snowball Three-Point Method), which advocates for long-term investment and asset allocation through diversification across assets, markets, and timing to achieve diversified investment returns and risk mitigation [4].