During his recent interview with Meb Faber, Jim Chanos explained why it’s so difficult to value U.S companies. Here’s an excerpt from the interview:
Q1 2023 hedge fund letters, conferences and more
Chanos: I have a bigger concern as it relates to our discussion about the 50 times earnings for Enron or 50 times revenues for Beyond Meat, and that is where the real rubber hits the road today on Bethany’s concept of legal fraud.
And that is the just insane overuse of proforma metrics by corporate America to present their results and investors getting very used to now valuing companies on alternative metrics which may or may not make any economic sense.
And so the adding back, particularly in Silicon Valley, of just insane amounts of share-based compensation to the P&L, we’ve equitized just employees as well as investors to attune that we’ve never seen before with the idea that it’s not a real expense.
And it’s one area where I would chide the SEC for falling down on, because technically companies are not supposed to lead with these metrics.
Adjusted eps, adjusted EBITDA, what have you. And yet that pretty much is now how almost all companies lead in their press releases and how financial journalists report results.
It’s always the non-GAAP adjusted number. And take a look at a staid company like GE. GE’s last report press release, of fourth quarter 2022 press release, had I think 14 pages of adjustment, 15 pages of adjustments, just the adjustments.
I mean its mind-blowing now on how corporations report their results and what they exclude and what they want you to exclude. And I think that that makes the valuations even more excessive today than they appear on the surface.
You can watch the entire discussion here:
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Article by The Acquirer’s Multiple.
