Comments on: CHART OF THE DAY: TECH BUBBLE 2.0? http://pragcap.com/chart-of-the-day-tech-bubble-2-0 Sun, 12 Feb 2012 04:27:37 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: TPC http://pragcap.com/chart-of-the-day-tech-bubble-2-0/comment-page-1#comment-9125 TPC Wed, 18 Nov 2009 00:32:30 +0000 http://pragcap.com/?p=12958#comment-9125 The PEG ratio of 2.75 & p/s ratio of 2.65 disagree with your analysis. PE ratios are the most worthless valuation metric around. They are a measure of a few guesstimates compared to a moving target (price). Entirely unreliable. I just ran a quick back of the napkin DCF as well. Let's be really aggressive and assume the EPS grow at 30% with 2010 EPS of $3.25. A rough DCF estimate puts the price at $120. The stock could always appreciate, but the problem with a stock like this in this fragile environment is that it is very susceptible to downside. Bubbles are always fine until some fundamental flaw enters the equation. Can AMZN go to $200? Sure. Investors can continue to price in very optimistic growth until that growth doesn't appear to be such a guarantee. Then it will all come crashing down and when these high beta names come crashing down they crash hard. A little risk management would steer most prudent investors FAR FAR away from the Amazon's of the world.... The PEG ratio of 2.75 & p/s ratio of 2.65 disagree with your analysis. PE ratios are the most worthless valuation metric around. They are a measure of a few guesstimates compared to a moving target (price). Entirely unreliable.

I just ran a quick back of the napkin DCF as well. Let’s be really aggressive and assume the EPS grow at 30% with 2010 EPS of $3.25. A rough DCF estimate puts the price at $120.

The stock could always appreciate, but the problem with a stock like this in this fragile environment is that it is very susceptible to downside. Bubbles are always fine until some fundamental flaw enters the equation. Can AMZN go to $200? Sure. Investors can continue to price in very optimistic growth until that growth doesn’t appear to be such a guarantee. Then it will all come crashing down and when these high beta names come crashing down they crash hard.

A little risk management would steer most prudent investors FAR FAR away from the Amazon’s of the world….

]]> By: B Ferro http://pragcap.com/chart-of-the-day-tech-bubble-2-0/comment-page-1#comment-9122 B Ferro Wed, 18 Nov 2009 00:14:56 +0000 http://pragcap.com/?p=12958#comment-9122 Very poor analysis on the AMZN subject and I'm disappointed at the suggest by Bespoke and TPC (for furthering it) that there's a bubble developing in the stock (or the market by implication).... So, AMZON is trading at 130 - Foward year estimates call for EPS of 1.88 (2009), 2.53 (2010) and 3.40 (2011) implying foward respective P/Es of 69x, 51x and 38x - Not cheap he? What the Bespoke suggestion and the latter analysis fail to grasp is the following: AMZN has exceeded consensus estimates by 20% / quarter on average dating back to 4Q07 and including by 37% in the last quarter...so, let's apply +20% to all foward estimates and you get "likely" EPS of ~2.00 in 2009, 3.04 in 2010 and 4.08 in 2011 Such estimates imply respective foward P/Es of 64x, 42x and 31x and associated PEG ratios of 1.8x and 0.8x and 0.9x...not so expensive anymore considering the fact that 1) you're getting the most venerable growth story in the internet space for less than its growth rate amidst yet another Fed induced liquidity bubble that will inflate valuations anyways... I don't own AMZN or care about the name, but I wouldn't shy away from ownig it if I felt comfortable in the tech space Very poor analysis on the AMZN subject and I’m disappointed at the suggest by Bespoke and TPC (for furthering it) that there’s a bubble developing in the stock (or the market by implication)….

So, AMZON is trading at 130 – Foward year estimates call for EPS of 1.88 (2009), 2.53 (2010) and 3.40 (2011) implying foward respective P/Es of 69x, 51x and 38x – Not cheap he?

What the Bespoke suggestion and the latter analysis fail to grasp is the following:

AMZN has exceeded consensus estimates by 20% / quarter on average dating back to 4Q07 and including by 37% in the last quarter…so, let’s apply +20% to all foward estimates and you get “likely” EPS of ~2.00 in 2009, 3.04 in 2010 and 4.08 in 2011

Such estimates imply respective foward P/Es of 64x, 42x and 31x and associated PEG ratios of 1.8x and 0.8x and 0.9x…not so expensive anymore considering the fact that 1) you’re getting the most venerable growth story in the internet space for less than its growth rate amidst yet another Fed induced liquidity bubble that will inflate valuations anyways…

I don’t own AMZN or care about the name, but I wouldn’t shy away from ownig it if I felt comfortable in the tech space

]]> By: TPC http://pragcap.com/chart-of-the-day-tech-bubble-2-0/comment-page-1#comment-9117 TPC Tue, 17 Nov 2009 23:41:16 +0000 http://pragcap.com/?p=12958#comment-9117 In addition to that, it creates an environment where everything commodity related increases. This also creates an artificial boost to equity prices. In addition to that, it creates an environment where everything commodity related increases. This also creates an artificial boost to equity prices.

]]> By: TPC http://pragcap.com/chart-of-the-day-tech-bubble-2-0/comment-page-1#comment-9116 TPC Tue, 17 Nov 2009 23:39:06 +0000 http://pragcap.com/?p=12958#comment-9116 Joe, I never said investors were borrowing US and buying US. Perhaps I should have been more clear. I think my larger point is that this ZIRP is creating an environment that encourages risk taking and potentially leveraged bets that recreate this bubble environment that has been so destructive for so long. Joe, I never said investors were borrowing US and buying US. Perhaps I should have been more clear. I think my larger point is that this ZIRP is creating an environment that encourages risk taking and potentially leveraged bets that recreate this bubble environment that has been so destructive for so long.

]]> By: Rob http://pragcap.com/chart-of-the-day-tech-bubble-2-0/comment-page-1#comment-9112 Rob Tue, 17 Nov 2009 23:22:07 +0000 http://pragcap.com/?p=12958#comment-9112 But there is carry trade in foreign equities and bonds. There is almost perfect correlation in the way US and foreign equities are trading so there is an indirect connection. Additionally, although it may not be "carry trade" per se, banks are buying Treasuries with the same free money. Most strangely Treasuries have been trading in the same direction as equities. Normally Treasuries strengthen when stocks are declining and vice versa. Long-term treasuries now seem to be part of the "risk" trade. (They should be since eventually when interest rates jump, the holders will get burnt). But there is carry trade in foreign equities and bonds. There is almost perfect correlation in the way US and foreign equities are trading so there is an indirect connection. Additionally, although it may not be “carry trade” per se, banks are buying Treasuries with the same free money. Most strangely Treasuries have been trading in the same direction as equities. Normally Treasuries strengthen when stocks are declining and vice versa. Long-term treasuries now seem to be part of the “risk” trade. (They should be since eventually when interest rates jump, the holders will get burnt).

]]> By: Rob http://pragcap.com/chart-of-the-day-tech-bubble-2-0/comment-page-1#comment-9110 Rob Tue, 17 Nov 2009 23:13:30 +0000 http://pragcap.com/?p=12958#comment-9110 If you bought AMZN at the peak in 2000 you only had to wait 9 years to unload your AMZN shares at a profit. If you sold in 2001, you are just plain out of luck. If you bought AMZN at the peak in 2000 you only had to wait 9 years to unload your AMZN shares at a profit. If you sold in 2001, you are just plain out of luck.

]]> By: joe http://pragcap.com/chart-of-the-day-tech-bubble-2-0/comment-page-1#comment-9109 joe Tue, 17 Nov 2009 23:10:19 +0000 http://pragcap.com/?p=12958#comment-9109 tpc, Your comments regarding the falling dollar and rising US stocks relating to the carry trade is off target. By definition if someone borrows USD to buy US stocks, that is not a carry trade, since they are getting USD cash flows to support USD funding. The carry trade is only relevant in that it can depress the US dollar, and thereby, make US stocks attractive to foreign fundamental investors. More importantly, my point doesn't even depend on borrowing. My point just relates to the fact that if the USD falls, then a foreign investor can trade their currency for USD to buy US stocks, and get a better deal, and basically drive up the price of US stocks back to where they were before the USD fell. This is how stocks in banana republics trade. tpc,

Your comments regarding the falling dollar and rising US stocks relating to the carry trade is off target. By definition if someone borrows USD to buy US stocks, that is not a carry trade, since they are getting USD cash flows to support USD funding. The carry trade is only relevant in that it can depress the US dollar, and thereby, make US stocks attractive to foreign fundamental investors.

More importantly, my point doesn’t even depend on borrowing. My point just relates to the fact that if the USD falls, then a foreign investor can trade their currency for USD to buy US stocks, and get a better deal, and basically drive up the price of US stocks back to where they were before the USD fell. This is how stocks in banana republics trade.

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