9 ASX stocks currently have P/Es over 100. Are they "expensive"?

I once had a boss tell me that, at $5 per share, Pro Medicus (ASX: PME) was too expensive and that he wouldn’t buy it. And to be fair, by traditional valuation metrics, it was “expensive”. It now trades around $130 per share.

The thrust of his argument was that PME's price-to-earnings ratio (P/E) was too high. Behind price, P/E is one of the most oft-considered metrics to determine a company’s value.

It is a metric that allows our reptilian brains to quickly place a stock and compare it with other stocks and sectors. Of course, we all know that P/E alone is a very poor judge of value in isolation, and many more metrics can and should be used in combination with PE to help ascertain a better understanding of a company’s intrinsic value.

It should always be remembered that a stock is cheap or expensive only concerning its potential for growth (or lack thereof).

With all that said, today we’re taking a look at the members of the Centurion Club – i.e. those stocks with market caps north of $1 billion and 1-year forward P/Es over 100. 

Source: Halo Technologies

Share price performance

While high P/E stocks might be considered "expensive", that doesn't mean they can't generate strong share price performance. Over the past 12 months, Life360 is up more than 115%, followed by PME, up 84%. Meanwhile, Polynovo has rallied 59% while Temple and Webster has rallied 38%.

Not having such a good time of things was Liontown - down 68%. But that's the only Centurion club member that has been truly smashed over the past 12 months. 

For the rest of this wire, we'll take a closer look at each member of the club. 

Life360 (ASX: 360)

I recently chatted with Tribeca Investment Partners' Lead Portfolio Manager for the Alpha Plus Fund, Jun Bei Liu, about the company's latest results. Ultimately, she assessed that 360 "is now one of the highest quality growth companies here in Australia".

You can read more of that interview below:

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Is this the best growth company on the ASX?

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As for the brokers, according to Market Index, 4 rate the company as a BUY, with no HOLDS or SELLS. Morgan Stanley and Bell Potter both have price targets of $20.50, with Ord Minnett coming in at $19.28. 

Liontown Resources (ASX: LTR)

Liontown got caught up in the lithium euphoria and subsequent collapse, falling from $3 in October last year to currently trading around 80 cents. Albemarle's abandonment of its acquisition bid at the 11th hour after Gina Rinehart employed spoil tactics has not helped its cause. 

The current broker ratings see 2 BUYS, 6 HOLDS, and 2 SELLS. Macquarie rates the stock NEUTRAL, with a $1 target price, noting that Kathleen Valley is now around 95% complete with the processing plant construction at 99%. Bell Potter has a SPECULATIVE BUY rating and a $1.90 target price. 

Polynovo (ASX: PNV)

Medallion Financial's Michael Wayne talked about PNV in March this year, on an episode of The Pitch. 

He said at the time, "Polynovo has had moments of euphoria followed by moments of despair over the last couple of years. It's still well and truly off its all-time highs reached in 2020, but the business has improved considerably". 

He went on to say:

"The business is growing revenues in the vicinity of 60%. They're looking to bed down the US market where they've increased their sales team by 60-odd headcount. 

"They have reached an inflexion point, which we like to see, where they've turned EBITDA-positive after years of making losses, and revenue growth is accelerating. So when you're seeing revenue growth accelerate, it's often a very exciting story. 

Four brokers cover the stock, with 2 rating it a BUY, 1 HOLD, and 1 SELL. Macquarie is the most bullish, with a $2.75 target price, noting that FY24 sales for PolyNovo in the US increased by 49% while its ROW [rest of the world] revenues increased by 73.1%. Total sales beat the consensus forecast by 2%. The broker went on to forecast FY24 profit (uNPAT) of $3.7 million - the first full year of profitability for the company.

Chorus (ASX: CNU)

Chorus is the largest telecommunications infrastructure company in New Zealand. It is the owner of most of the telephone poles, wires and physical exchange assets in New Zealand and has been responsible for building the new fibre optic UFB network, the equivalent of the Australian National Broadband Network (NBN).

Like Telstra here in Australia, CNU holds a dominant, monopoly-like position in New Zealand telecommunications. This is particularly advantageous as the demand for cloud-based services, video streaming, teleworking and 5G networks continues to grow.

Macquarie is one of the most bullish brokers on CNU, with an OUTPERFORM rating but no target price.

Pro Medicus (ASX: PME)

This is the stock that inspired this wire. I was fortunate enough to speak with PME co-founder and CEO, Dr Sam Hupert, last reporting season. That interview can be seen below. 

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Why relentless innovation is Pro Medicus’ biggest opportunity and risk

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During this year's Outlook Series in January, we asked a handful of managers which stock they would buy in a selloff. Joel Fleming from Yarra Capital Management and Chris Stott from 1851 Capital both nominated PME. 

More recently, James Gerrish and my former running mate at MarcusToday, Henry Jennings discussed PME on Buy Hold Sell. Gerrish said "It's hard to do anything but [rate] a buy on PME" while Jennings said that management has been putting in a "gold medal-winning performance". 

Readers agreed with Gerrish and Jennings too, with the poll results from that Buy Hold Sell episode showing that 54% of people (308 total votes) rate PME as a BUY.

Megaport (ASX: MP1)

It was a rough period for Megaport shareholders when it troughed out at just over $4/share in April 2023. But since then, the faithful have been handsomely rewarded, with the share price up 160%. 

Recently, Goldmans called out Megaport as an example of a stock the consensus expects to see more than 100bps of profit margin expansion next year, despite poor earnings momentum in recent times.  Goldmans has a price target of $14.00, implying a nearly 25% upside to its closing price. It's also one of the four major brokers that have positive ratings on the stock (accumulate or above.)

Someone who agrees is Aaron Yeoh of OC Funds Management. Yeoh, who rates the stock a BUY, described the company as one that is "years ahead, effectively, in front of their competitors." However, Emanuel Datt of Datt Capital, who joined Yeoh on the same Buy Hold Sell episode, disagreed.

"Ultimately, it goes back to that valuation that you mentioned. I think that the market has priced in a strong period of growth, and we've definitely seen that change in trajectory in terms of improvements in earnings momentum going forward," Datt said.

Brickworks (ASX: BKW)

The long-time brother to Soul Patts (ASX: SOL) is one of the ASX stalwarts, with recently departed CEO Lindsay Partridge only retiring after a 25-year run in the top job. Of the major brokers who cover the stock, only Citi and Bell Potter have the stock rated as a BUY. Most of its major compatriots have a HOLD recommendation on the company. 

But while the brokers don't universally love the company, one person who does is TMS Capital's Ben Clark. Joining The Rules of Investing in mid-April, Clark described the company as a "holy grail" stock. 

"I feel that there's like growing evidence that we are looking at a once-in-a-generation house building boom. We need a lot more dwellings for the people who have come to Australia and we have massively underinvested in this area for too long as a country," Clark said. "That headwind could turn into a tailwind, so absolutely it would still be up there [as a holy grail stock]."

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Why Ben Clark is taking profits on growth stocks (and where he's putting that money to work)

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Wisetech Global (ASX: WTC)

It's very difficult to find anyone who doesn't believe this is a genuine champion of the ASX. That's not just because Fidelity International's Justin Teo called it out as a "market champion" in this recent piece. Or that Morgan Stanley's Chris Nicol described the company as an example of a "quality compounder". 

What the analysts and brokers don't agree on is whether you can still buy in at these levels. Of the seven major brokers who cover the stock, just two rate it as a BUY or OVERWEIGHT. Most of the sell-side rate the stock a HOLD or NEUTRAL, with Macquarie's price target suggesting it needs to fall about 10% before it would re-evaluate its rating. 

The final word

Keen observers may have noted that there is a stock on the list above that I haven't covered in any depth - GYG. 

It's a new entrant to the ASX and the jury is still out on this one - as well it should be. But the question begs - will this be a Centurion Club member that investors are looking back on in a couple of years' time saying, "It's too expensive", while the share price has gone up threefold? Time will tell. 

Over to you?

What stock did you not buy because it was expensive, only to look back some time later and lament what might have been?

Equally, what stock did you not chase, that ultimately fell in a heap? Share your stories in the comments section below.