Shannon Sharpe was once advised not to buy $300K of ‘overpriced’ Google shares after big payday from the Ravens — says that move could’ve made him a ‘billionaire.’ Here’s what you can learn

“[Google is] worth over $3 trillion now,” Cuban laughed. “I would’ve been a billionaire with you,” said Sharpe.

But his estimates seem to be off. Adjusted for stock splits and the formation of a new holding company, Alphabet, investors in Google’s IPO are up 6,500% over the past 20 years. Sharpe’s $300,000 investment would now be worth nearly $20 million. Not bad, but a long way away from a billion.

Nevertheless, Sharpe and Cuban’s regrets over missing out on Google and Nvidia have a common theme: misleading valuations.

Valuations can be misleading

Value investors such as Warren Buffett focus on finding high-quality stocks that are mispriced. However, this style of investing is different from investors focused on hypergrowth.

Companies like Google and Nvidia dominated technological breakthroughs that allowed them to scale up rapidly. In other words, they could grow into their valuations over time as revenue and earnings expanded at an accelerated pace.

For instance, Google shares were trading at 65 times earnings shortly after the IPO. By traditional measures, that would be considered overpriced. However, Google’s earnings per share have expanded at a faster rate than the stock price over the past 20 years, which is why the stock now trades at a relatively modest price-to-earnings ratio of 24.70.

Similarly, Nvidia stock was trading at 247 times earnings per share in mid-2023, a ludicrously inflated valuation. However, the company’s revenue and earnings have skyrocketed since then, which has lowered the stock’s price-to-earnings ratio down to 53.48 this year.

Professional investors understand this and often don’t mind paying the price for relatively expensive stocks that are on the path toward robust growth. Here’s how you can adjust your valuations to account for growth.