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It's not a bubble because there's only a handful of companies which are trading at values which I would consider to be excessive for the underlying business. N

by c2 15y ago

It's not a bubble because there's only a handful of companies which are trading at values which I would consider to be excessive for the underlying business. Netflix, Salesforce, Tesla, LinkedIn, and potentially Facebook/GroupOn. Almost every other technology company is trading at lower then average P/E values, including for the first time in a long time, Google and Apple. So is a handful of potentially over-valued companies reasons to call out a bubble? I'd say no, at any given time there will be absurdly valued companies trading on any given stock exchange, that probably hasn't changed in the entire history of the NYSE.

achompas 15y ago
Just curious, but what are you comparing Netflix's P/E to? How do you conclude that Netflix is overpriced?
- c2 15y ago
  To be honest I'm not an expert. In my opinion Netflix feels overvalued to me. Maybe not based on the P/E but it certainly doesn't seem like a 15 billion dollar company to me.
- ikono 15y ago
  How do you conclude that Netflix is overpriced? I've said this before but anytime a stock is trading at an earnings multiple significantly higher or lower than average, the burdon of proof should fall on the person arguing for such a multiple. Netflix is trading at a P/E of about 75. Right or wrong that should at least give an investor pause. There is a lot of success already baked into that price. At this type of multiple a company has to outperform already sky high expectations in order for an investor to make money(in a fully rational world). This is possible but it becomes increasingly difficult as that multiple expands.
  - c2 15y ago
    For companies like Linked In with tiny earnings a sky high multiple might make sense. They only have one or two quarters of profitable business in. But for companies like Netflix and Amazon, who have sustained growth, revenue, earnings, and a pretty clear business model, you really have to think about the magnitude that 70x earnings growth implies.
    - ikono 15y ago
      I guess it depends on how you define sky high. LinkedIn is trading at 2100x earnings according to google finance. Now there are certainly times when P/E is meaningless and LinkedIn probably is one of them but for a company with no track record it should give some pause. The question is are people investing in these companies or are they speculating about them?

by c2 15y ago

achompas 15y ago

Just curious, but what are you comparing Netflix's P/E to? How do you conclude that Netflix is overpriced?

c2 15y ago
To be honest I'm not an expert. In my opinion Netflix feels overvalued to me. Maybe not based on the P/E but it certainly doesn't seem like a 15 billion dollar company to me.
ikono 15y ago
How do you conclude that Netflix is overpriced? I've said this before but anytime a stock is trading at an earnings multiple significantly higher or lower than average, the burdon of proof should fall on the person arguing for such a multiple. Netflix is trading at a P/E of about 75. Right or wrong that should at least give an investor pause. There is a lot of success already baked into that price. At this type of multiple a company has to outperform already sky high expectations in order for an investor to make money(in a fully rational world). This is possible but it becomes increasingly difficult as that multiple expands.
- c2 15y ago
  For companies like Linked In with tiny earnings a sky high multiple might make sense. They only have one or two quarters of profitable business in. But for companies like Netflix and Amazon, who have sustained growth, revenue, earnings, and a pretty clear business model, you really have to think about the magnitude that 70x earnings growth implies.
  - ikono 15y ago
    I guess it depends on how you define sky high. LinkedIn is trading at 2100x earnings according to google finance. Now there are certainly times when P/E is meaningless and LinkedIn probably is one of them but for a company with no track record it should give some pause. The question is are people investing in these companies or are they speculating about them?