> Microsoft was sporting a ~50-65 PE ratio in 1999/2000.
Today's PEs:
MSFT: 28.35
GOOG: 34.74
AAPL: 18.55
FB: 38.64
CSCO: 18.08
ORCL: 22.18
T: 16.33
VZ: 12.54
CMCSA: 17.56
INTC: 15.56
NVDA: 57.80
TSLA: --
AMZN: 277.89
NFLX: 201.87
As for the outliers, they're all pretty much examples of large bets on the future of the various companies:
- Nvidia seems to be well placed for GPU driven ML
- Tesla is a bet on battery tech and self-driving cars
- Netflix is a bet on Netflix dominated global on-demand entertainment and distribution (they're now in all but 4 countries)
- Amazon is of course a bet on owning the online retail sector
Like any bet some will pay off and some won't.
> This list only keeps going.
See now that's a bit of a stretch.
That's the part where the market has kicked into bubble valuation territory, when you're primarily seeing multiple expansion driving 40% or 100% type gains.
Microsoft hasn't been able to grow earnings for years. Why do they have a 30 style PE ratio? Why did their stock triple on zero earnings growth? Comparing their growth today versus the multiple, against 2000's valuation, today's value proposition is drastically worse. Or spread it out, compare 1995-2000 MSFT growth, with the multiple they had at the end of that five years, versus 2012-2017 growth and the multiple they have now.
As for Microsoft specifically, it's run largely coincided with Satya Nadella succeeding the largely lackluster Baller. Coincidence?
And Azure is doing pretty well too - it's a 3 horse race with AWS and Google, and there does not necessarily have to be a single long term winner.
people will continue to pay higher prices with no regard to whether its "expensive" if they feel confident in the economy. And ultimately if they feel a greater fool will buy them in the future.
Why are you sure if that? The opposite is true. At some point stockholders will get afraid and pull back. The question is how much, and who gets hurt the most.
I think the point of the parent comment isn’t that a high PE ratio is inherently bad, but that these stocks are more highly valued relative to revenue than stocks usually are.
That's half myth. Most of the Nasdaq's value inflation was from companies with substantial revenue, not a thousand DrKoop.com or Pets.com companies.
Just the overvaluation by Microsoft, Cisco, Oracle, Sun, Nortel, Lucent, Intel, AOL, Yahoo ($1.5 to $2 trillion in overvaluation) - was more than what all the dotcom IPO companies were worth combined.
Most of the largest tech market cap companies of 2000 had real revenue.
Microsoft was sporting a ~50-65 PE ratio in 1999/2000.
AOL was commonly trading for 150 to 200 times earnings, with $8 billion in annualized revenue and over a billion in annualized profit, growing at 100% year over year circa mid 2000.
Cisco was solidly profitable, had $16-$20 billion in annualized revenue and was growing extremely fast. It produced the single largest market cap in history up to that point.
Oracle was commonly trading at 100 times earnings.
Just the Cisco overvaluation alone, at $450 billion give or take, was worth more than most of the zero revenue style dotcom companies combined (companies like Geocities, TheGlobe, etc).
There is once again trillions of dollars in overvaluation among today's largest tech companies. You can easily see that when you look at how they've inflated based on the market moving rather than earnings the last three or four years. For example, Microsoft's valuation tripled over five years on the back of between zero and very little earnings growth.
Appraise Amazon's valuation based on income. Good luck.
Netflix? 150-200 PE ratio has been typical.
Activision is worth $50 billion, trading at 45-50 times earnings, with typical 7%-10% style income growth.
Cisco's valuation has nearly doubled in five years, despite very little income or business growth.
Alibaba is trading for 50-60 times earnings.
Salesforce.com is trading for... oh geez, 400 times last fiscal year's earnings, and a lot more than that based on the last four quarters.
Oracle's stock is up by about 1/3 in the last year, while its business can't get beyond where it was in 2015.
VMWare has a ~43 PE ratio, and is lucky if they can generate 10% growth at this point.
Intel has doubled in five years, with minimum income growth.
nVidia is trading for 60 times earnings. Sales might grow 15%-20% in the coming year, which caps what their earnings growth is likely to do as well.
Tesla's valuation? Ha.
Twitter & Snapchat, ~$35 billion in combined market value, neither have ever earned a profit.
Workday has never earned a profit. $22 billion valuation. In fact their losses just keep growing by the year, over 25% of revenue equivalent for their last fiscal year at $400 million in negative net income. Revenue nearly doubled, losses nearly doubled, versus 2015. This is a company that loses between 1/2 and 2/3 of its market cap in the next downturn as they're forced to slash the bleed out of desperation and the juiced growth implodes with it.
AMD, the poster child for showing up during market bubbles, has an $11 billion market cap and hasn't earned a profit in ... who remembers when. Their stock went up 6-7 fold on hype, while they can't even get sales back to 2014 levels.
Splunk, $9 billion market cap. This is a company that bleeds red ink by the barrel ($800+ million in losses the last three years, on $2 billion in sales). Oh but they're growing fast so it's ok? It won't be ok when the music stops and they have to cap the red ink, then the growth that's artificially juiced by that goes with it.
Broadcom, 50 times forward earnings, lucky if their growth hits 15% in the next year.
Texas Instruments. Zero growth for years. The stock is up roughly 40% in the last year. Pure multiple expansion.
Priceline.com, 40-45 PE ratio, lucky if they can hit 10% style growth in a given year since 2013. Stock is up 50% since 2014, while earnings are still below that level.
This list only keeps going.
Is it as bad as 2000? No, it's merely extremely bad today, not yet dotcom bubble days bad.