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FraserJC

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27/06/20

20:02

Post #: 45491643
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Originally posted by specvestor: ↑

I would be cautious using the dotcom boom & bust in 2000 as a bubble comparison. The issue was valuations at a much higher P/E ratio than would be reasonable even with reliable future earnings, such that growth expectations were astronomical and unrealistic. Add to that many of these companies didn't have a reasonable revenue model and therefore future earnings and it was all hype, no due diligence.

I would not make this same comparisons to the likes of Facebook, Amazon, Apple, Microsoft and Google. They are established companies with reliable long-term revenues and future earnings expectations. They will not collapse in such a way as you saw in the dotcom bubble because of that, hence using the dotcom comparison is a false equivalence fallacy.

It's important to point this out imo, as you might over estimate the downside risk ("This is a bubble just like 2000!"). Im not saying you're doing this, simply sharing my view of caution in this regard. I simply wouldn't bring them up in the same sentence. Again just my opinion.

I do however, think they are currently overpriced comparative to their near-term earnings. Given how massive they are, I worry that their growth potential is being over-estimated, with the exception of Amazon which I wouldn't bet against. Facebook and Google rely heavily on add revenue which, in the coming year+ long recession - will not be as profitable.

Further I do think its a reasonable thing to consider the likes of the BNPL sector to be a bubble where the market may be overpricing what is essentially a merchant service fee business. Yes its a good and profitable business, but i'm not sure you would want to be trading stock in the multiples that are currently being traded when there is a significant downside risk in debt repayment failure (especially during a recession!). It only takes a minor increase in bad debts for them to sink in value. What may be underestimated (and hence a bubble) is that customer can simply walk away with a detriment to their credit score. They also lack the same level of debt-recourse that traditional credit cards hold.

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Long post mate. My understanding is that valuations are more stretched now than ever before. What is your understanding?

Either way, my money is absolutely where my mouth is. Trust yours is too...

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BBUS, page-6886

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BBUS, page-6886

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