Mark Hulbert, who keeps his fingers on the pulse of contrarian indicators, put this sort of enthusiastic disregard of reality into a harsh light: That takes a lot of market enthusiasm to just totally give up on the idea of net profits and focus on the hope that management comes up with some new and more palatable metrics. Not to speak of the valuations of Tesla, Amazon, and Twitter. Yet the company has a market capitalization of over $9 billion. Splunk, which had $125.7 million in revenues last quarter, down sharply from the prior quarter, lost $71.2 million in the quarter and $237 million for the year. Note the three worst offenders – Twitter, Amazon, and Tesla. These seven companies combined had a total of $2.2 billion in net losses over the past four quarters. Yet, there are some big losers in the “New Tech” index, including the well-known sinners in the table to the left. Which gives the “earnings” part of the P/E ratio a strong upward bias. Hence, only profitable companies are included in the calculation of the P/E multiples of the overall index. It’s thus excluded from the average P/E ratio of the index ( table). It’s usually expressed as “N/A” or just a dash. The P/E ratio of a company that has a loss is undefined. Looking at past performance, the “New Tech” index sports an average trailing twelve-month P/E ratio of 69. “This is probably bubblier than it was then given the lack of market memory,” Keith McCullough, CEO of Hedgeye Risk Management, told Kollmeyer. And compared to the peak of the last tech bubble which blew up in March 2000? Even better, those “earnings” to beat might actually be with a minus-sign in front. By the beginning of the reporting period, they’re then close to something that these companies can actually beat. So rose-colored fiction.Īs those quarters get closer, analysts whittle their earnings estimates down. But it’s based on pro-forma, ex-bad items estimates of what earnings might possibly look like in the next twelve months under the most optimistic or simply fabricated circumstances. Morgan Stanley’s “New Tech” index is trading at 149.5 times forward earnings, Barbara Kollmeyer at MarketWatch pointed out. A feat that seems impossible to reach for a number of other companies in the tech space where profits are optional. A big one, $3.9 billion, so “earnings” with a plus-sign in front of it, rather than a minus-sign.
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