Get used to shrinking valuations for high-flying shares

CNBCs Jim Cramer said Tuesday that while Wall Street remains concerned, investors will have to grapple with a “new formula” for identifying earnings stocks Federal Reserve step on the brakes on the hot US economy.

“We need to get used to falling valuations for fast-growing companies, especially those that are price-to-sales,” said the “Bad money” said the host, referring to a Valuation indicator this is often applied to unprofitable companies.

“Sooner or later, I think this sell-off is going to take its course, and I am still looking for a Santa Claus rally. That hasn’t changed, ”he added. “But you have to watch out for multiple contraction … in a market that wants solid profits for P / E and no volatile sales for value for money – sales multiplier for.”

Cramer pointed out Dutch Bros to clarify his position that investors should favor companies with profits and give some of them back to shareholders. The Oregon coffee chain that went public in September is growing fast but not generating a profit yet.

That wasn’t a problem for many investors early in fall, he said, as evidenced by the fact that Dutch Bros’ shares rose as high as $ 81.40 on November 1st. It closed the session on Tuesday at $ 49.69. Over the past month, the stock is down nearly 20%.

While Cramer acknowledged that Dutch Bros could continue on its growth path and add many more businesses in the US and achieve sustainable profitability, he said that this is simply not a priority for many investors right now.

“If we’re worried about a Fed mandated slowdown and no one is willing to pay for the phantom, potential revenue is possible in more than a decade, well, good luck,” said Cramer.

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