Should you take a byte out of the market?
Shares in US pop culture and technology company Apple are on the cusp of producing a market capitalisation of A$1 trillion. As the Nasdaq technology index closed at a record high last week – above the pre Tech Wreck highs for the first time – you might be interested in some bullish and bearish perspectives currently occupying the minds of more learned observers than us.
As an aside you might also be interested in this Montgomery post about Apple from 2010, when Apple shares were trading at US$254.
Following are just a handful of arguments being put forward by the bulls and the bears. Some are irrelevant, some are downright funny, but all are interesting.
We’d love to hear your thoughts and add to the list, so post your own fun facts about the market’s current metrics below.
Bullish:
- Technology stocks are only the fourth best performing sector in the S&P500. In the late 1990s, they rose four times as fast as anything else.
- The Nasdaq rose 1150 per cent from trough to peak in the 1990s, since March 2009 it has only risen 290 per cent.
- 1999 Nasdaq gain was 86 per cent. 2014 gain was 13 per cent.
- Nasdaq 1999 average monthly swing; 7.8 per cent. 2014; 2.8 per cent.
- 1999 Nasdaq top 10 performers posted annual gains of 722 per cent. 2014; 75 per cent.
- S&P500 at Price/Earnings ratio of 27 times average earnings for past decade, during 2000 the peak was 44 times.
- Barclays says since 1988, US stocks have never fallen over the subsequent year when they have been valued at 17 times next year’s earnings, as they are now.
- Nasdaq company share prices are trading at an average of about 20 times earnings, compared with 66 times at the peak of the bubble in March 2000.
- Internet was only an emerging concept in 1999/2000, today it is at the heart of commerce and communication.
- Nasdaq is now less tech heavy. Tech stocks made up 65 per cent then, now just 42 per cent thanks to inclusions such as Comcast, Starbucks and Walgreens.
- The Nasdaq record is not a record at all if inflation is considered. Adjusted for inflation the Nasdaq must rise to 6900 points today.
- Average IPO sales multiples in 2000; 32 times revenue. Today; 6 times.
- S&P500 earnings estimates forecast to decline 2.9 per cent over the first quarter but an improvement on previous estimates of a 5.6 per cent decline.
Bearish:
- 80 per cent of tech IPO’s are unprofitable. April 2015 debutant and online vintage and craft marketplace Etsy generated 2014 revenue of $195.6 million but posted a net loss of $15.2 million. The year before it lost $796,000 on $125 million in revenue, and in 2012 it earned $55 million in revenue but lost $2.4 million. The shares more than doubled the $16 IPO price on the first day, trading at $34 and giving the company a valuation of more than $2.6 billion.
- In April Amazon announced a loss, but shares rose 15 per cent to a new record after exceeding analysts’ sales expectations and founder Jeff Bezos increased his personal fortune, on paper, by US$5 billion.
- S&P500 earnings estimates forecast to decline 2.9 per cent over the first quarter.
- S&P500 at Price/Earnings ratio of 27 times average earnings for past decade. Only time it has been this high (excepting Tech boom) was just before the great crash of 1929.
- Nasdaq Consensus analysts forecast earnings to fall 1.1 per cent in the first quarter.
- While Barclays says since 1988, US stocks have never fallen over the subsequent year when they have been valued at 17 times next year’s earnings, as they are now, there were plenty of annual declines after stocks were priced between 11 and 15 times earnings.
Roger Montgomery is the founder and Chief Investment Officer of Montgomery Investment Management. To invest with Montgomery, find out more.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
