Thanks Steve
Much depends on the type of company/stock, the industry it operates in, and the current 'stage' that the market is in.
On point 1, the type of company/stock, this could be a growth stock, value, income name, etc. For a growth stock, the valuation is less important to an extent. We have seen NVDA's forward P/E valuation go from 61X in May 2023 to 36X today, all while the stock price has more than doubled. This is one reason why valuation metrics on growth stocks matter less, as high valuations can get compressed as long as earnings are growing faster than share price, which at times can still leave a highly attractive share price return, as we saw with NVDA. Value stocks typically have lower valuations, alongside lower growth rates. Income stocks also have lower valuations, as most of their excess cash flow is paid to shareholders via dividends, rather than reinvested in growth.
The industry matters as well - for example tech vs. consumer staples. Tech stocks can see earnings growth multiple fold in a year while consumer staples typically grow slightly faster than GDP growth. Thus the higher growth industries trade at higher valuations.
Lastly, the 'stage' a company is in. A company could operate in the tech space, but also be in a more 'mature' stage, witnessing slower growth and typically this is a legacy-type business in the industry. These will often trade at lower multiples relative to the industry it trades in.
For WELL, it operates in the healthcare space, but it is a high-growth name. It has sacrificed profitability for the sake of high growth, and thus its margins are thin and inconsistent, thus, we like to use forward sales as the valuation of choice for WELL. It trades at a 1.0X forward sales valuation, and we consider this to be relatively cheap. Its price to book is also fairly reasonable at 1.2X, indicating it is close to its equity value.