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Anyone bullish on current financial asset pricing is likely smoking
something…[as] it seems to me that we are on the precipice of a major adjustment in financial asset valuations. The precise timing is unknown but it appears to be close. In fact, there is a good case to make that a financial market stall has been under way for about six months. Are we finally at the point where the market looks down and makes like Wiley Coyote?
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A look at the breadth of stock performance is revealing. According to Michael Lebowitz via 720Global.com, whatever gains in the S&P 500 over the last five or so months came basically from 4 stocks [known by] the acronym FANG for Facebook, Amazon, Netflix and Google…[which] are up on average 40%, whereas the S&P 500 is flat over the same period…
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The analysis in the table below reflects the change in revenue, profit margin or income required for these companies to have the same price to earnings (P/E) as the S&P 500. The data highlighted in blue represents the revenue, margin or net income required to bring each P/E to the market average of 18.6. The data in yellow highlights the percentage change required to bring each P/E to the market average.
Conclusion
If you believe these stocks are going to continue to go to P/E multiples of infinity…or feel that other stocks in the market are undervalued based on economic and geopolitical conditions…perhaps you should turn your money over to someone more qualified to manage it.
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The original article was written by “Monty Pelerin” (economicnoise.com) and is presented here by the editorial team of munKNEE.com (Your Key to Making Money!) and the FREE Market Intelligence Report newsletter (see sample here – sign up in top right corner) in a slightly edited ([ ]) and abridged (…) format to provide a fast and easy read.]