I sold out of PWR Holdings today. This is a super high quality business with founder management (this is no secret to the market). And this sell is counter to the mantra that "the vast majority of losses in the stock market come from picking the wrong business, not the right business at the wrong valuation". But as I tried to justify the current price multiple ways, and apart from hoping for continued increase in sentiment, I couldn't see where my returns were going to come from. Currently trading on 55x earnings, there is a lot baked in at these levels. The company has compounded its earnings by just over 18% CAGR over the last 5 years. If we assume this continues for the next 5 years, the company would be earning 48c per share. From the current share price of $11.97 an average market return of 10% would mean it trades at $19.28 in 2027. For this to happen, I would need the stock to be trading at over 40x earnings of 48c at that point. I dont think thats a bet I want to take. Even if I was hyper bullish and thought the company could compound its earnings at 30% CAGR. Its earnings would be 78c and need to trade at 25x at that point, which is still not cheap. The management itself has also said they expect the revenue growth to be moderate for FY23 and beyond.

I understand demand for their cooling systems will be increasing with electric cars, defense, aerospace, data centers etc. The company is very innovative and always looking for the next opportunities with a long term mindset. But I believe the market has fallen in love with this stock too much and returns from this level will not be sufficient for me. Id like to buy back in, if the price comes back substantially. Hopefully it does.